A question I’ve been asked since starting I Will Teach You to Be Rich more than a decade ago is how to control your finances.
At first, it can be hard to answer — especially if you’re in debt, unemployed, or a combination of both. BUT there’s good news: You can take control of your finances as long as you have the right systems and mindsets.
I want to show you how to do that now.
How to control your finances in 5 steps
Imagine how your life would change if you woke up tomorrow and:
- You knew exactly how much money you had
- Your bills were paid on time
- You invested your money for retirement automatically
- You had an extra $1,000 to spend or invest in whatever you wanted
- You had leftover income to spend on what you love — guilt-free
This isn’t just some pipe dream. You can have all this as long as you implemented the right mindset and systems — and that starts with …
1. Change your mindset
What’s the conventional wisdom around getting rich? Some things that probably come to mind:
- Cut costs by sacrificing the things you love
- Save money by pinching pennies
- Keep a traditional spreadsheet budget
- Invest in stocks/crypto/magic-bullet-of-the-week
Luckily, I’m here to tell you to ignore all that. Instead, reframe: The best way to live a Rich Life is to be conscious with your spending — and not relying on willpower.
For example, you’ve probably heard about the millionaire who told millennials to cut out avocado toast to save money for a downpayment on a house. One huge problem (among many) with that advice is that it relies completely on human willpower.
Sure, someone hearing this advice might try to give up avocado toast — but they have to make that decision every day. That means using their limited amount of willpower to forgo something they love to eat in the hopes of achieving a vague savings goal. Eventually though, they’ll give in and end up buying avocado toast.
It all ends up looking something like this:
Instead, I urge anyone reading who wants to truly take control of their finances to adopt a new mindset. You can have your avocado toast and your morning lattes without feeling guilty as long as you are conscious with your spending.
And that can only start once you achieve one thing …
2. Get out of debt
This is possibly one of the most important things you can take away from this article: The biggest and most common barrier in the way of living a Rich Life is debt.
If you are one of the 80% of Americans in debt, you need to start getting out of it before you think about investing and earning more for two big reasons:
- Financial. This is obvious. When you’re in debt, you owe money to your creditors. And as long as you owe money, you’ll never truly own your income, as some of it is already earmarked for the people you owe it to.
- Psychological. This might not be as obvious. Debt takes a huge psychological toll on the people who owe money, and can even lead to mental health issues such as depression and anxiety.
But there is hope. In fact, getting out of debt is a fairly straightforward process as long as you’re willing to put in the effort.
I wrote an article detailing exactly how you can get out of it. Here are the key insights from that article:
- Find the exact amount you owe. A study found that many don’t actually know how much debt they owe. However, this just leads to you blindly paying the minimum payment instead of actually owning your debt. Only then can you start a good strategy to get rid of it.
- Use the Snowball or Avalanche methods. Dave Ramsey famously touts his Snowball Method of getting out of debt. This involves paying the minimums on all of your debt, but paying more money to the card or loan with the lowest balance first (i.e., the one that will allow you to pay it off the quickest). There’s also the Avalanche Method, which involves tackling the debt with the highest interest rate first. It doesn’t matter which method you choose. What matters is you choose one and stick to it.
- Decide how you’re going to pay your debt. There are a number of ways you can approach this. You can negotiate a lower interest rate and put the money you save toward chipping away at what you owe. You can also tap into hidden income to free up some money. If you’re really enterprising, though, you can start EARNING more money (more on that later).
For more on how you can get out of debt, be sure to check my resources below:
- How to get out of debt fast in 5 steps
- Pay off your credit card — IWT style
- How to pay off student loans without thinking about it
- Debt consolidation: Is it right for you?
Today, I just want you to do one thing: Find out how much debt you owe. Remember that your creditors want you to keep your head in the sand and not know how much you owe. That’ll keep you in debt longer and they get to earn more money. Forget that. Instead, take your debt by the horns and find out how much you owe today.
Once you’re done with that, you can move onto our third system …
3. Automate your personal finances
Having an automatic system in place for your personal finances is a great way to:
- Be conscious with your spending
- Pay down your debt passively
- Invest without even thinking about it
It’s also the best way to make sure you’re conscious with your spending.
One reason we don’t save or invest money is due to the pain of actually transferring your money into your savings account each month.
It’s like cutting out avocado toast. We might do it once or twice, but if we have to try and manually save EVERY paycheck, we’re setting ourselves up for failure.
When you automate those things though, you can do it passively because your system does it for you. That means saving, investing, and spending guilt-free for years to come.
I’ve written about this extensively — but here’s a quick overview of how you can build this system today:
First, categorize your spending. You have to know exactly where your money needs to go each month in order to send it there.
So ask yourself, “How should I spend my money each month?”
Some spending recommendations:
- Fixed costs. About 50% to 60% of your income should be going toward things like your rent, phone bill, utilities, and internet.
- Investments. About 10% of your income should be going toward investments for the future such as your Roth IRA and 401k.
- Savings. About 5% of your income should go toward short- to mid-term savings goals. Think things like your wedding, down payment for your house, and down payment on a new car.
- Guilt-free spending. About 25% to 30% of your income should go toward guilt-free spending. This is things like extra guac in your Chipotle burrito, investments like crypto, or your morning lattes.
Second, you’re going to want to take a look at your recent credit card or bank statement and subtract the amounts in those categories from your take-home pay. You’ll then get an idea of what you have left over for categories like investing, saving, and guilt-free spending.
NOTE: This doesn’t have to be an exact amount. This can be a ballpark figure. As you get more advanced, you can fine-tune this system. The important thing to do now is to get started at all.
Last, you’re going to spend a few hours calling your bank, credit card companies, utility companies, and payroll manager at your job to make sure that you know exactly when to expect them each month.
Once you’ve automated your spending, congrats! You’ve taken a crucial step. You’re learning how to control your finances.
That’s not all, though, you should also make sure that you have a good investment system in place — which brings us to …
4. Invest for your future
There are two big ways you can start investing in your future today:
- 401k: Take advantage of your employer’s 401k plan by putting at least enough money to collect the employer match into it. This basically means that for every dollar you contribute, your company will match that (pre-tax!).This ensures you’re taking full advantage of what is essentially free money from your employer. That match is POWERFUL and can double your money over the course of your working life:
- Roth IRA: Like your 401k, you’re going to want to max it out as much as possible. The amount you are allowed to contribute goes up occasionally. Currently you can contribute up to $6,000 each year.
For more information on these powerful investment accounts, be sure to check out my article on them here.
5. Earn more money
This is my all-time favorite way to take control of your finances. I’ve always believed that there’s a limit to how much money you can save — but no limit to how much you can earn.
From my years of experience running my own business, and teaching scores of people to start their own as well, I’ve found that there’s one great way for people to earn more: Turn the skills you already have into a side hustle.
That’s why my team and I have worked hard to create a guide to help you earn more today:
The Ultimate Guide to Making Money
In it, I’ve included my best strategies to:
- Create multiple income streams so you always have a consistent source of revenue.
- Start your own business and escape the 9-to-5 for good.
- Increase your income by thousands of dollars a year through side hustles like freelancing.
Now that you know how to control your finances, download a FREE copy of the Ultimate Guide today by entering your name and email below — and start earning more money today.