With more and more Americans choosing to take control of their finances, many are wondering where to start. If you are one of those Americans looking to make smarter financial decisions, below are five financial planning tips for beginners taking their first steps to control their finances. Let’s get started by going over the first and most important step in financial planning.

Most Important Financial Planning Tips For Beginners

No. 1 Make A Budget

Perhaps the most important step in financial planning tips for beginners, and often the most overlooked, is making a budget. Without having a full understanding of your expenses, many of the other financial planning tips will be significantly less useful. Getting started, what does it mean to have a budget? A budget, simply put, is a tool used to compare the amount that you make and that which you spend. The amount you make is used as a guideline for how much you should be spending.

When setting up a budget, it’s important to ensure that you are not spending all of what you make. You’ll want to save some of your income. According to surveys published last year, 25% of Americans have no emergency savings. And another 26% don’t have enough emergency savings to last for three months. Ensuring that you are living below your means is an important first step in taking control of your finances. And this is also a great financial planning tip for beginners.

No. 2 Paying Off Credit Card Debt

The ease and convenience of using a credit card can also be its greatest downfall. According to the New York Fed, the last quarter of 2021 saw the largest increase in credit card debt since the institution started tracking the data 22 years ago. The issue with using credit cards is that many Americans do not pay off their balance. Less than half are paying their statements in full every month. The interest attached to credit cards, which can easily surpass 20-25%, can make an otherwise small purchase balloon to a much greater size.

Carrying a large amount of debt can then hinder you from doing things that you might otherwise want to do. This can include getting a loan for a house, leasing a car, renting an apartment, etc. So if you are going to use your credit card, ensure that you can pay it off in full when your statement comes in. It’s a task made simpler if you’ve already made a budget.

Keep reading for more information on financial planning tips for beginners.

No. 3 Understand Your Risks And Goals

While it may be tempting to consider going straight into investing the money that you have, it’s first important to understand your goals and risks. Part of financial planning is ensuring that you have financial safety and security in the short term. If you are someone that has a history of medical issues, or you are a caretaker for someone who does, investing all of your free cash may not be the smartest move. If you are near retirement, but a financial planning beginner, investing in higher risk or more volatile vehicles also may not be advisable for you.

There is no one size fits all approach to financial planning tips for beginners. Understanding yourself and your priorities, is a far better approach than simply looking at society at large and attempting to copy what everyone else is doing.

No. 4 Be In Control

Following from the previous tip, ensuring that you are the person in charge of your own financial planning is vital. Instead of worrying about what talking heads or virtual avatars are investing in, take the time to educate yourself. Educating yourself is a vital step in ensuring that you are not letting FOMO or any broader pressure influence your financial planning.

Once you have a good foundation to build from, look into different investment or savings options. See what available options make the most sense for you given your individual interests and values. This is of course in addition to your risks and goals. If needed, speak to a financial advisor or planner. They will help you create a personalized investment plan that helps meet every criteria that you have for yourself. In looking for a financial planner or advisor, ensure that your advisor is upfront about their fees. And you’ll want to make sure they’re tailoring their recommendations to you. And they’re not just picking from a preset selection that they offer to everyone. Doing this will usually earn them hefty commissions. It’s your money, you deserve to keep as much of it as you can.

No. 5 Maintain Good Records

The last of my five financial planning tips for beginners pertains to the arduous task of keeping and maintaining good records. Besides helping with budgeting, the process can be extremely helpful when tax time comes around. Having well kept and maintained records can help ensure that your taxes are completed efficiently the first time around. They can also help you find any possible deductions and credits that you may be eligible for. The process will also help educate your decision on whether or not you choose to move. It’s important to note the marginal tax brackets in different localities and states vary. The same salary in New York City will be worth significantly more to you in other cities. And this will further help you build wealth in the short and long term future.

Financial Planning Tips For Beginners Final Thoughts

When looking at the listed five financial planning tips for beginners, you’ll notice that all of them require a large amount of personal responsibility and effort. Setting up a budget, paying off your debt, understanding and educating yourself and keeping good records are all things that ask you to invest your time and effort. The payoff at the end, whether that be escaping debt or building generational wealth depending on your goals, will make the entire process worth it.