Money can feel overwhelming sometimes.
But it doesn’t have to be! I’m here to help.
I’ve listed 10 steps that you can take to get your financial life in order.
1. Check your credit reports and your credit score annually
Check your credit reports and credit score annually for free using AnnualCreditReport.com. Not only will you be aware of your score, but you will know what is on your reports and whether there is any incorrect information listed. This is one way to know whether you’ve been a victim of identity theft.
2. Track your net worth (assets and liabilities)
Start tracking your net worth by subtracting your liabilities from your assets (net worth = assets – liabilities). Tracking your net worth is a good way to measure your overall financial health at a given time. It’s a good indicator of where you stand financially today. If you update your net worth over time, you can see the change and progress you make towards financial goals you set. Seeing your net worth go up over time is inspiring, too. I use a free account from Personal Capital to track my net worth.
Track your income and expenses by using a budget. Whether you’re rich or struggling financially, it is good to know what you have coming in for income and what you’re spending on expenses. It’s the financially responsible thing to do. Then, if you realize you’re spending too much, you will know that you need to do something to cut back. Alternatively, if you have a surplus, you can save and invest more aggressively instead of spending it without paying attention to where it’s going.
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4. Build an emergency fund of at least six months of expenses
Financial experts recommend saving an emergency fund of three to six months of discretionary expenses, or even more depending on your sources of income. The one thing that I know for sure is that having an emergency fund takes away the fear around emergencies with respect to how you’ll pay for them. The emergency still may stink, but you won’t stress and worry about how you’ll pay for it if you have money saved. And emergencies will happen. They happen to everyone.
5. Get out of debt
Create a get out of debt plan now. It will never be easier for you to get out of debt than it is when you have the least amount of responsibilities. Usually, this is when you’re young. If you get married and buy a house, you increase your responsibilities and make it harder to get out of debt. You owe it to your future self to get out of debt now so you don’t have to worry about it later.
- Related: How to Get Out of Debt Now
6. Save for retirement
Start saving for retirement as soon as you can. If your employer offers a match, it’s a good rule of thumb to invest up to the match, at the least. If your budget allows you to save more, then save more. Saving for retirement early is really important because you have the advantage of time that older people don’t have.
7. Create financial margin in your life
Create financial margin in your life. This means, start living below your means and stop living paycheck to paycheck. Create a financial buffer in your checking account so you have margin for when things come up. It will help relieve some financial stress if you aren’t worried whether your next swipe is going to result in an overdraft. I like to say, “it’s better to want than to owe!”
8. Set financial goals
Set financial goals for yourself. Your goals can be short-term and / or long-term. But stay in touch with what you have and what you want financially. This will keep you grounded in your financial foundation and on track to creating the financial future that you want.
- Related: How to Set Goals
9. Make big purchases very carefully
If you are going to make a big purchase, like buying a car or a house, be very careful doing it. Know what you can afford and thoroughly research the purchase before buying. Don’t go over your budget and know the terms that you’re agreeing to by signing on the dotted line. You won’t regret it!
10. Always make the financial decision that is wise for you
Before you make any financial decision, ask yourself “what is the wise decision for me to make?”. This decision may not be the “right” choice and it may not be the choice that your friend would make. But do what is wise for you because then you won’t regret it. Consider your past experiences, current circumstances, and future hopes and dreams (as Andy Stanley so wisely phrased this exercise), and then make the choice that is wise for you. You can build a strong financial future one wise decision at a time!
A Final Note!
If you actually save this post and follow the steps above, then you can get your financial life in order. It’s too important not to!
When I graduated from all my schooling and took one look at my student loans, I immediately thought “how did I make it to a 25-year-old attorney and know nothing about personal finance?!”.
I felt completely blind-sided and began a quest to understanding personal finance – something I managed to avoid for a solid 25 years. After listening to Suze Orman and Dave Ramsey, I became addicted.
Fast-forward five years, and I’ve learned a lot about money. Now, I’m a financial planner and blogger. If I can transform from a spender-student-loan-survivor, you can do it, too!
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