Do you feel like you have to always be doing a handful of things in order to gain traction in your finances? Instead, here’s a simple step by step guide to gain traction in your finances like never before.
Let’s set sail on your journey to financial freedom.
Across almost all the free consultations I provide to clients wanting to work with me, one thing continues to ring true. People try to do too many big things at once.
Instead, let me walk you through a step by step plan that you not only can achieve but will give you the financial traction you desire.
Let’s face it. We’re all human. If you are discouraged, distracted, overwhelmed or not motivated, you’re going to give up.
It becomes more difficult to follow through, which is usually where people lose their way. Before we embark on these seven steps, make sure you have two very important pre-steps in place.
Pre-Step A – Get Current
Make sure you are current on all of your bills. If you are behind on your cable bill or mortgage payment, you need to put your dollars first towards getting caught up; otherwise, you will constantly be playing catch up.
Pre-Step B – Live on a Zero-Based Budget
Oh, budget. I said the “B” word. But, don’t worry, budget just means a spending plan!
A zero-based budget simply means every dollar has a place to go. It doesn’t mean you are going to spend it all. It just means you have a plan.
Let’s think of these two pre-steps as a boat that will launch you into a step by step financial journey.
The next seven steps are waypoints towards the final destination of financial freedom. You need to make sure your boat is well-equipped to make the journey.
If your boat has a hole in it, it’s not going to make it. It’s not a matter of whether or not it will sink, but a matter of how fast. You need a sound vessel!
Likewise, if you don’t live on a budget you sailing a financial boat with a hole in it.
At the same time, if you aren’t current on your bills, you haven’t hoisted your anchor. You’re basically trying to sail in one direction while your vessel is being pulled in another.
Constantly dragging that anchor behind you will rip a hole in your boat and not allow you to reach your different waypoints.
With these two pre-steps in place it’s time to set sail.
Step 1 – Put $1,000 in Your Emergency Savings
Whether it’s in your cookie jar or the bank, get $1,000 into your savings as fast as you can for emergencies.
90% of what could happen to you in cases of an emergency will cost less than $1,000.
Make sure this emergency fund is also liquid. First, it should be easy to get to and, second, there should be no penalty for accessing it.
Your credit card is not an emergency fund! Following this step by step plan and applying step 1 is critical in reaching the remainder of your destinations.
If you are planning to keep it in a bank account, I recommend a money market account. I discussed this and more about Step 1 in a previous video. The point is, have step 1 in place before you proceed to step 2.
Step 2 – Pay Off All Debt with the Debt Snowball
This step is about paying off all your debt, except your primary mortgage, using the method called the debt snowball as discussed in another previous video.
The debt snowball is listing all your debt (1 through __) and paying it off smallest to largest, one-by-one, and step by step.
Step 3 – Increase Emergency Fund to 3 to 6 Months
Take the account from step one and increase the balance to a full-blown emergency fund that has three to six months of living expenses.
How do you know what three to six months of living expenses looks like? By having a budget in place, hence Pre-Step B!
Step 3b – Save for Mid-Term Goals
This step serves as a brief pausing point in the seven steps to allow you to set aside for those mid-term goals.
Want to know what those mid-term goals are? Check out my previous video to identify five big things you may need to pause and save for that you don’t already know.
You’ve already paid off those debts and saved up that emergency fund, so now we can devote that money to saving up for those mid-term goals.
Step 4 – Invest 15% of Your Gross Income
Step four is about investing a portion of your gross annual income into retirement savings.
The goal is to get through steps one through three in 2-3 years so you do not put your retirement savings efforts on long-term hold.
Overall, it is in your best interest to complete these tasks step by step instead of spreading yourself thin and working on many at once.
Now, 15% is a rule of thumb number. What that percentage means for you could vary so talk to your investment advisor, but the point is to get step four in place and running.
Step 5 – Saving for Kids’ College
Now, let’s be honest, it isn’t child abuse to not put your kids through college. Research shows those who work their way through college have higher test scores. So, it may even be in their best interest.
You’ll notice this step comes after retirement. There is a reason for that. When you fly on an airplane, they tell you that if the cabin loses pressure and oxygen masks drop, you need to put yours on first and then assist your child.
While there is many different places to get money for college (hint: not student loans!), there is only one place to get money for retirement. YOU!
You need to make sure you take care of your future before you take care of theirs or else they’ll be taking care of you and their kiddos when you hit retirement.
Step 6 – Paying Off Your Mortgage
Now, you hear a variety of opinions on this subject; but, how would it feel to be mortgage free?
What could you do with a paid-off mortgage? Probably anything you want. Life would feel a whole lot sweeter if you paid off that house.
Step 7 – Build Wealth and Give
Now that you are freed up to move beyond the scope of your own home and family, you can begin to build wealth and give abundantly.
What if you wanted to start a non-profit or a foundation? Being free of all that debt and having a plan for your future allows you live out those dreams.
These pre-steps and seven steps will allow you to not only live well but enjoy the journey.
Build that strong boat and sail through those waypoints, step by step, enjoying the ride and doing it with purpose, which will not only keep your wallet heavy but your heart light.
Question: Are you struggling to juggle the handful of financial goals all at once? Do you need help getting an action plan in place that will not only allow you to sail off in a safe vessel but reach all seven of those waypoints and reach financial freedom?
Want to be part of an inspiring encouraging community of like-minded individuals? Join my free Facebook community the Strong Together Money Community. I hope to see you there!