Pre-Pandemic, almost two-thirds of Americans were living paycheck-to-paycheck, over half wouldn’t be able to come up with $500 in cash, and many were burdened by credit card debt.
Today, the top financial concerns are inflation, unexpected expenses and the economy. When I read that this morning, it wasn’t a surprise. We never know when we’re going to be faced with adversity. The trick is to be as prepared for it as we can be.
In the spirit of helping you become better prepared, I want to talk about 7 straightforward things you can start doing immediately.
These are top things I’ve learned over the course of my 20+ years as a financial advisor.
One final thought before we get into it; I want you to reach your desired level of financial success. If you want to get rich, that’s what I want for you. If you simply never want to worry about money again, that’s what I want for you. Whatever your endgame, you must start with financial security.
Once you achieve financial security, you can then move on to financial prosperity.
Here’s what we’ll cover:
- Know your cash flow
- Follow a budget
- Set your foundation
- Stay insured
- Get out of debt
- Pay yourself first
- Maximize your income
Let’s get started.
Know your cash flow
A first principle of personal finance is “Don’t run out of money.” I can remember a time in my life where, if I ran out of cash, there was no more spending. It was a different time, a time before credit was ubiquitous.
Knowing your cash flow means paying close attention to the money you have coming in and the money you have going out. While this seems straightforward (and it is), too many people don’t truly know these numbers. Making matters worse, people aren’t logging into accounts and monitoring their spending.
In today’s subscription economy, it’s easy to collect recurring monthly expenses. The problem is, small amounts add up to big amounts over time.
The first step to knowing your cash flow is to pay attention to it. Know how much money you have coming in every month, and how much you’re spending. The next step is to log in to every account you spend money through on a monthly basis to ensure there are no charges which shouldn’t be there.
Follow a budget
The next first principle to pay attention to is “Spend less than you make.” Again, very straightforward, but difficult to adhere to.
Simply put, a budget is a plan for your money. It can help us make big financial decisions like how much home to buy, as well as small ones like can I afford to go out to dinner this week.
While I still don’t get excited to go over my monthly budget, I recognize the important role it plays. My budget tells my wife and I if we’re on track to meet our goals, or if we’re behind and need to make adjustments.
I really want to stress the importance of knowing. Whether you’re ahead of your goals, or behind on them, tracking your cash flow and following a budget will help you know. Once you know, you can respond accordingly.
Set your foundation
Our third financial first principle is “Plan for emergencies.” We never know what life is going to throw at us, so the more prepared we can be, the better.
I used to encourage people to have three to six months’ worth of expenses saved in an emergency fund. Now, I think six to 12 months is a wiser decision. Now, before I go any further, I understand how difficult it can be to get that much money saved. And I also know once you’ve got it, you’ll enjoy peace of mind.
Two final thoughts on your emergency fund:
- Have it in an account which is separate from your everyday checking account.
- Don’t invest the money. I appreciate there is an opportunity cost of having cash, but the last thing I want is for you to experience an emergency, and to find your fund has decreased because of the stock market.
I don’t think you’re going to die before you’re supposed to. I don’t think you’re going to become disabled. The odds are definitely in your favor.
But the consequences to your loved ones should one of those things happen would be catastrophic. That’s why we buy insurance.
Regarding life insurance, a good starting point is to buy 20 year level term insurance with a death benefit of at least 10x’s your annual income. Don’t consider buying fancy insurance until you’ve got all of your other financial goals and objectives fully funded.
Explore the disability insurance options through your employer. You may have high quality, low-cost options available as an employee benefit.
Finally, if you feel like you can’t afford to have it, you can’t afford not to have it.
If you have questions, you can connect with one of our Certified Partners.
Get out of debt
The silver rule, or second first principle of personal finance is “stay out of debt.” If you’re like too many Americans and are burdened by credit card debt, make getting out a priority.
You can access our Get Out of Debt course at no cost.
Obviously, being debt-free will give you a great sense of accomplishment and peace of mind, but it will also free up money for other priorities.
Pay yourself first
The golden rule, or number one first principle of personal finance is “pay yourself first.” Simply put, if you’re in the habit of paying everyone else first, and waiting till the end of the month to pay yourself, you’ll discover there’s no money left over for you.
This was most certainly a phenomenon I consistently encountered in my 20s. It’s easy to get stuck living paycheck-to-paycheck. You break free of that cycle by enrolling in your company’s 401(k), or opening an IRA and setting up automatic contributions on the 1st of the month.
If you’re sick of having more month than money, paying yourself first will help.
Maximize your income
Is it easier to earn more, or to live on less?
We all have a relatively short window of time to work (sometimes it feels like a very long time), so it’s important to focus on maximizing your income.
What can you do to earn more money? Is there a new certification or skill you can pick up? How can you create opportunities to increase your value? Is there a side hustle you can start to begin earning extra money?
Back to the question of earning more or living less, perhaps a combination of the two is your path to financial security and eventually success?
Security first, then prosperity.
I’m always interested in being as efficient as possible, and working smarter rather than harder. But when it comes to achieving financial security, there are no hacks or shortcuts.
Implementing these 7 ideas will help you gain the security you’re looking for. You’re someone who is fully capable of enjoying financial prosperity. Get started.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
If you’d like help getting on the same page with your partner, check out our Same $ Page Course.
If you’d like to help your kids get good with money, check out our Teaching Kids about Money course.
Connect with one of our Certified Partners to get any question answered.
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