5 Simple Steps to Improve Your Finances
You know you want to do better financially…
The greatest step in planning is always execution. Without execution, a plan, no matter how great it is, will always hang on the rims of being just that….a potential greatness. Your challenge to begin may come in a simple statement such as “I don’t have enough money to save.” The real problem is, you just don’t know where to start.
There are two categories people typically fall into. Either they want a quick fix or they make it too complicated. I struggled for years before I figured out how to turn my finances around. After all the years of struggling, I learned some pretty awesome steps, allowing me to pay off massive debt and grow my net worth in three short years.
Following these steps have drastically improved my life financially, emotionally and physically. Now my money works harder for me than I do for it so that I can focus on living my best life.
I am going to share with you, the FIVE SIMPLE STEPS you can take right now to get started on your path to financial freedom.
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#1 Know What You’re Working With
Most people have no idea what they are making and what they are spending their money on. Getting a firm understanding of where you stand today can give you clues on areas of improvement.
Pull your last two months of bank and credit card statements. List out what you brought home and group what you spent your money on in categories. You might be surprised at how much you're spending. Most people are shocked by how much they spend on dining out and at Target.
For a little extra credit, try to calculate your savings rate for last month:
Figure out your take-home pay
Add up your income after taxes and deductions
Add in how much you saved for retirement or investments
Add in any money you added to your savings
Add in any extra payments you made toward debt or bills
All this added up represents your Take Home Pay
Figure out your expenses
Total up everything you spent money on
Only count your minimum payments
Add all this up and that represents your Expenses
Now get out your calculator, because we’re gonna do a math equation
Subtract your Expenses from your Take Home Pay
Divide what you got above by your Take Home Pay
Multiply that number time 100
That number is your Monthly Savings Rate
5000- 4750= 250
0.05 x 100 = 5
That’s a 5% savings rate
The average savings rate in America 3%, Most financial advisors want you to have a 10-15% savings rate. Most people in the Financial Independence community strive for savings rates of 50% or higher.
Sound shocking? No worries, you can get there.
#2 Focus on Little Tweaks You Can Make, Apply Them Consistently and Build on Them
Set a goal to change one small thing a week, on the income or expense side. Try not eating out this week. Next week make sure you’re maximizing your take-home pay. Did you get a tax refund last year? Instead of giving the government an interest-free loan, adjust your withholdings next week.
The accumulation of small changes will start to add up. Before you know it your savings rate will start moving closer and closer to that 50% goal.
#3 Set one financial goal and stick to it until completion
Are you in debt? Do you want to save for down payment on a house? Make this goal a priority.
Say you want to save $20k for a down payment on your first home in the next two years. That’s about $833 you need to save a month. Make it a goal to save at least that much a month and stick to it!
I wanted to be debt free by my 36th birthday, this meant I would have to pay off $6k a month. I almost nailed it but the IRS and the divorce court hated on me (I went on the pay it all off 6 months later). Just having the goal and hitting it over and over again did so much to let me know what was possible for me. It’s what helped me rapidly increase my net worth after having the debt paid off.
#4 Automate as much possible
Schedule automatic payments through your bill servicer or through your personal bill pay. Making as much as possible automatic helps you avoid late payments and similar costly fees associated with it.
Remember that goal we just talked about? Pay yourself first and have it automatically transferred to your savings the day your paycheck hits your account.
Make sure you are contributing to your company retirement each month. This automatic withdrawal helps you save substantially and hardly make a difference in your take-home pay. Think tax savings.
Build your savings muscle by slowly increasing your contributions and savings over time. Try to increase by 1-2% a month. You’ll be on baller status soon without much effort.
#5 Know Your Why!
This really should be number one but I didn’t want to scare you away if you thought this was froufrou. It’s really not!
Wouldn’t you be more motivated to lose weight if you wanted to slay in your wedding dress versus if you were just losing weight because you thought you should? There should always be a WHY?
My daughter’s future was mine. I never want her to be trapped in an abusive relationship, a toxic work environment or have to take on massive student loans. I want her to start off her adult life, not having to start from zero or in the negative due to debt. Wouldn’t it be nice if you had a nice foundation to kick off your life with?
Your why has to be stronger than the impulse to fall back into old money habits. It has to be the motivation, that drive to get you through your slumps. Believe me, you’ll have plenty of slumps.
Your why will change over time just like your financial goals. You won’t be in debt forever, your kids will eventually graduate, you’ll have built a strong investment portfolio. So it's super important to evaluate your why often and make sure it’s relevant.
There you have it. These are some practices you can get to work on immediately to turn your finances around.
I want to hear from you. What will you get started on today? Click on the chat box in the bottom right corner and let me know.