Have you been asking yourself, “How do I get ahead financially?”
How do you think about your finances?
Do you think about them more like a sprint, or a marathon? I don’t think there’s a right or wrong answer.
Depending on what you’re trying to accomplish, either perspective could make sense. If you’re 25 years old and working on your retirement plan, it’s wise to think of it as a marathon. If you’re trying to get out of debt in the next 12 months, that’s more of a sprint.
Asking, “How do I get ahead financially?” is a great first step, regardless of the kind of race you’re beginning. Following the six steps I’m going to share will help you get ahead financially.
I’m confident in that statement because they’ve helped countless people over the course of my 20+ years as a financial advisor. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- The importance of $1,000
- Pay yourself first
- One month’s worth saved
- Your debt-free commitment
- Cash on hand
- Your saving and investing plan
Let’s get started.
The importance of $1,000
The journey of 1,000 miles begins with a single step, so does your path to getting ahead financially. That first step is getting $1,000 saved. This is the beginning of your emergency fund. If you’ve already got that saved in an account separate from your everyday checking account, you’re ahead of most people. In fact, a recent survey suggests two in three adults wouldn’t be able to come up with $400 in cash in an emergency.
I want everyone to get exactly what they want financially. If you want to get rich, that’s what I want to help you do. But I know the only way you’ll ever become financially successful is if you first become financially secure. Your $1,000 emergency fund is the first step in that process.
Pay yourself first
Once you’ve got $1,000 saved, it’s time to follow the golden rule of personal finance; pay yourself first. If you’re currently in the habit of paying everyone else first, you’ve probably experienced getting towards the end of the month and running out of money.
When you live paycheck-to-paycheck, as almost two-thirds of Americans do, you’re living through this every month. Paying yourself first helps to break this vicious cycle. So how do you do it?
You do it in the following ways:
- Set up automatic transfers from your checking account to your savings account at the beginning of every month.
- Enroll in your company’s 401(k) and set up automatic contributions.
- Open an IRA and set up automatic contributions at the beginning of every month.
- Open a taxable brokerage account and set up automatic contributions at the beginning of every month.
How much should you contribute? Eventually, 20% of your after-tax income will be allocated to your financial goals and priorities. As you’re getting started, even 1% is a great beginning.
One month’s worth saved
You’ve got $1,000 saved, you’re paying yourself first, now it’s time to get to one month’s worth of expenses saved in your emergency fund. The only way to know how much you’ll need is to know your cash flow and your budget, which are foundational to your overall success.
When you track that information, you’ll know how much money you have coming in, and how much is going out every month. You’ll know your fixed and variable expenses, and you’ll know how much you’ll need to save.
Before I go any further, I’m not saying any of this will be easy. But I assure you it will all be worth it.
Your debt-free commitment
If paying yourself first is the golden rule of personal finance, getting out of debt is silver. Credit card debt is a burden for many Americans, with the average balance being over $6,000. This debt causes stress and anxiety, and prevents us from pursuing other financial goals and objectives. It’s imperative to put together a plan for breaking free.
The first step is setting your intention to become debt-free. Get a piece of paper, or open a document. At the top of the page write; I will be debt-free.
From there, write down all of your credit card balances, the interest rates, minimum monthly payments, and companies. Next, create a plan for paying it off.
In service of helping you to do this, you can access our Get Out of Debt course for free.
Cash on hand
Once you’ve paid off your credit card debt, it’s time to complete your emergency fund. Pre Pandemic, I would encourage people to get three month’s worth of expenses saved up in their emergency fund. Today, I tell people to get to six. I’ve also taken to calling emergency funds “cash on hand.”
You’ll need to make your own decision on what the appropriate amount for you and your family is. What I know for sure is this; once you have six month’s worth of expenses saved up, you’ll have financial peace of mind. You’ll also have financial security, which is your springboard to financial prosperity. Again, I know this won’t be easy to do.
A final thought on this; resist the urge to invest your emergency fund. The last thing I want to happen is for you to have an emergency, go to get the money, only to find it’s down 25% because the stock market dropped. Leave it in cash.
Your saving and investing plan
It’s time. You’ve achieved financial security, now you’re ready to pursue financial prosperity. You already know where you’re at. Let’s talk about where you want to go.
One of our superpowers as humans is our ability to set goals and make plans for achieving them. When setting financial goals, think about it in terms of time horizon. We need money today, we’ll need money 10 years from now, and we’ll need money 30 years from now.
Figure out what you want to accomplish, then determine what actions you can begin taking in order to make them a reality.
In service of helping you do this, you can access our Goals course for free.
That you’re asking, “How do I get ahead financially?” tells me you’re ready to get serious about doing so. You’re fully capable of achieving whatever level of financial success you’re looking for. You’ve just got to get started.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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