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4 steps to building a resilient financial life

Life can throw curve balls 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 how to get your finances in order, the first thing to do is set your goals. What do you want to achieve? It could be sticking to a budget, paying off debt, saving for retirement, building an emergency fund, or saving for a big expense like a car, house, or a child’s education. .

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

Step 1: Be SMART with your goals

Whatever your goals are, I encourage you to put pen to 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 repay a debt, start with the actual dollar amount of the amount you want to repay. This makes it specific and measurable. Then, get action-oriented by defining the steps you’re going to take. If it’s paying off a debt, you may be able to cut back on eating out or apply your tax refund to your credit card bill.

By making your goal specific, measurable and action-oriented, you will be able to see if your goal is realistic – and if not, you can adjust it, for example by extending the time frame. Speaking of time, the T in SMART stands for time-bound: give your goal an expiration date so you have a target in mind. Once you hit that deadline, you’re encouraged to reach for the next goal, 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 daydream about your floor plan and decorations, but the building of the house doesn’t really begin until you start digging and laying the foundation. Creating a more formal budget is the foundation of our financial lives, helping us see exactly where money is flowing so we can better allocate it to our many needs, wants, and goals. Calculate every incoming dollar, including income from your job or any other source, such as rental property or side hustle. Then, track your expenses, from rent and gas to coffee and birthday presents. Once you have listed all of these 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 some new clothes in the “want” column instead. of the “need” column.

Another helpful tip is something called the 50-30-20 rule: think about 50% of your budget to cover things like bills, food, housing, insurance, and utilities; then the next 30% is for streaming services, vacations, or new gadgets; then the remaining 20% ​​to savings – like your retirement account, stock portfolio, and emergency fund.

Step 3: Be realistic

Practice makes perfect, so think of your financial life like playing 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 achieve your goals. The more you practice throwing this dart, the better you will be at hitting the target consistently.

Of course, many of us live paycheck to paycheck or rack up debt to make ends meet. If this is where you are today, it always helps to have a clearer picture of your goals, income, expenses, needs, and wants. Write it all down and try to identify where you can potentially cut back. For example, you probably need your cell phone, but is there a cheaper plan that might work? If there’s really no wiggle room, look for ways to bring in some extra income – maybe turn that passion project into a side hustle or take on a part-time flex job.

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

Step 4: Get help

Financial literacy is simple, but not necessarily easy. The sooner you start budgeting, saving, and investing, the more time you have for your money to 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 today to build your financial resilience so that when you retire, you can live the kind of life you’ve always imagined. If you’re feeling behind, don’t panic – start today and start as small as you need.

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 to achieve your goals. Maybe you’re 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 additional support that can help you take control of your business. financial journey today.

This article has been prepared for informational purposes only. The information and data contained in the article were obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or warranties as to 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 goals of those who receive it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate specific 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 the investor’s individual circumstances and objectives.

Chief Financial Wellness Officer, Morgan Stanley

Krystal Barker Buissereth, CFA®, is managing director and financial wellness officer for Morgan Stanley at Work. In this role, she is responsible for working with corporate clients and organizations on creating, implementing and managing financial wellness programs that meet the needs of their employees.

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