4 steps to building a resilient financial life

Life can throw curveballs at you, bringing unexpected events and expenses. That’s why building financial resilience in your life can be so powerful, and it starts with learning to get a basic idea of ​​how your finances work and what you can do to make them work better for you.

If you’re feeling a little unsure or overwhelmed about getting your finances in order, the first place to start is by defining your goals. What do you want to achieve? It could be sticking to a budget, paying down debt, saving for retirement, building an emergency fund, or saving for a big expense like a car, a house, or a child’s education.

Let’s review four basics for building a more resilient financial life.

Step 1: Be SMART about your goals

Whatever your goals are, I encourage you to put pen and paper to write them down. I like to use something called the SMART goal setting method, which stands for:

  • Specific
  • Measurable
  • action oriented
  • Realistic
  • Limited in time

For example, if you want to pay off a debt, start with the actual dollar amount of how much you want to pay off. That makes it Specific and Measurable. Then, get action oriented by defining the steps you are going to take. If it’s paying down debt, maybe you can cut back on eating out or put your tax refund toward your credit card bill.

By making your goal specific, measurable, and action-oriented, you’ll be able to see if your goal is realistic, and if not, you can adjust it, such as extending the time frame. Speaking of time, the T in SMART stands for Time Limit: Give your goal a due date to keep a goal in mind. Once you hit that deadline, you’re encouraged to do the next goal, and then the next, and that’s how we progress in our financial lives.

Step 2: Get Organized

I like to use the analogy of building a house. It’s fun to dream about the floor plan and decorations, but the construction of the house doesn’t really begin until the construction begins and the foundation is laid. Creating a more formal budget is the foundation of our financial lives, as it helps us see exactly where the money is flowing so we can better allocate it to our many needs, wants, and goals. Calculate every dollar you bring in, including earnings from your job or any other source, like a rental property or side hustle. Next, track your expenses, from rent and gas to coffee and birthday gifts. Once you list all of those expenses, separate them into two columns for needs and wants.

This part is going to be different for everyone. For example, we all need to wear clothes, but do you really need new clothes every month? Maybe you will if you have a growing child or need a new coat, but maybe not, and maybe you can put new clothes in the “want” column instead of the “need” column.

Another helpful tip is what’s called the 50-30-20 rule: Think of 50% of your budget going to cover necessities like bills, food, housing, insurance, and utilities; then the next 30% to necessities like streaming services, vacations, or new gadgets; and then the remaining 20% ​​to savings, such as your retirement account, stock portfolio, and emergency fund.

Step 3: Be realistic

Practice makes perfect, so think of your financial life as a game of darts, where each triangle on that dartboard is a different aspect of what you said you were going to spend or save to reach your goals. The more you practice throwing that dart, the better you’ll be at hitting the target consistently.

Of course, many of us live paycheck to paycheck or rack up debt to make ends meet. If that’s where you are today, it’s still helpful to have a clearer picture of your goals, income, expenses, needs, and wants. Write it all down and try to identify the places where you can potentially cut back. For example, you probably need your cell phone, but is there a less expensive plan that might work? If there really is no wiggle room, look for ways to generate additional income, perhaps turning that passion project into a side hustle or choosing a flexible part-time job.

Making ends meet can be tough, so it’s important to put energy into building a financial cushion when you get the chance. You may also have heard that it’s a good idea to have three to six months of essential expenses saved up as an emergency fund, but for many of us, that’s easier said than done. Just keep in mind that savings don’t happen overnight. Start small, find out what works for your lifestyle and save, even if it’s $5 at a time.

Step 4: Get support

Financial education is simple, but not necessarily easy. The sooner you start budgeting, saving, and investing, the more time you have for your money to potentially grow and help you reach your goals. Even small amounts of money invested can add up over time, thanks to the power of compound interest. So make sure you’re working to build your financial resilience today so that when you retire, you can live the kind of life you’ve always envisioned. If you’re feeling behind, don’t panic, just start today and start as little as necessary.

Our finances are such an important area of ​​our lives, which is why I personally find it very reassuring to know that there are many types of professionals who can offer support as you weigh your options, plan your next steps, and work toward your goals. You may be ready to build a financial support team with the help of lawyers, accountants, or financial advisors and coaches. Many companies offer their employees access to financial education, advice, and resources as part of their benefits package, so check to see if your company offers any additional support that can help you take control of your financial journey today.

This article has been prepared for informational purposes only. Information and data in the article were obtained from sources outside of Morgan Stanley. Morgan Stanley does not represent or warrant the accuracy or completeness of information or data from sources outside of Morgan Stanley. It does not provide personalized investment advice and has been prepared without regard to the individual financial circumstances and objectives of the recipients. The strategies and/or investments discussed in this article may not be appropriate for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The suitability of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Head of Financial Welfare, Morgan Stanley

Krystal Barker Buissereth, CFA®, is the CEO and Chief Financial Officer of Morgan Stanley at Work. In this role, she is responsible for working with corporate clients and organizations to create, implement, and manage financial wellness programs that meet the needs of their employees.

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