We live in a world that encourages us to spend wastefully, accumulate more than we need, and put off things like retirement savings until we’re basically retired. It’s easy to look around us and see all the things we could be buying to become the person we want to be, and treat fiscal responsibility like the exclusive domain of antisocial dweebs.
But in development and running The Financial Diet every day, I have realized that the first concrete steps to becoming the kind of person who is ” good with money” are rather easy and straightforward ― these are the basic of getting good with money in a year that we have learned in three years of building The Financial Diet, and being on serious financial diets ourselves.
1. Create a Budget
Without a budget, you have no chance of getting control over your money ― and getting it to do what you want. Sit down with a few months’ worth of card statements and bills, track exactly what you’re doing, and sort everything into a category going forward.
2. Build an Emergency Fund
We recommend that you have three months’ worth of all living costs saved up in an easily accessible, regular savings account. You can do up to six months’ worth, but, at least initially, three months is the best balance between “doable” and “providing the necessary security.” This emergency fund (and about $1,000 in your checking account for day-to-day use, once bills are paid) are really the only money you should keep in regular bank accounts. The rest of your savings should go to much more useful and valuable things, like retirement (but more on that later).