At A Glance – Are you feeling stuck with your finances? Do you wonder where to start with your money? Here is a step-by-step guide to help get your finances in shape. No matter where you’re starting, this guide will help.
Getting your finances in order can be a scary task. Where do you start? Who do you trust? What if you get it wrong?!
Don’t worry, I’ve experienced all these emotions, and I did sometimes get it wrong! After all, most of us weren’t taught any of this personal finance stuff.
So, I’ve put together a step-by-step guide to help you get on track with your money. This is based on my own experiences and what I’ve learned. It’s not complicated and it is totally doable.
For me, the first step was changing my mindset about money. I learned to be in control of my money decisions and not let my money control me. I learned to be intentional. Every dollar that left my hands was scrutinized. Now, most of my money decisions are on automatic.
There are stand-alone articles related to most of the steps below. If you’d like to dive deeper into any of these topics, just click the link.
Step 1: Evaluate Where You Are Right Now
The best place to start managing your money is to evaluate where you are now. No guilt, no shame. Just look at where you are. This involves adding up all your debt (what you owe) and all your assets (what you own). The difference between those two numbers is your Net Worth. This gives you a feel for where you stand.
Here’s a guide and spreadsheet to help you determine your Net Worth: Figuring Out Where You Are Right Now.
Step 2: Track Your Spending
Your next step in evaluating your current situation is to track your spending. You need to know where your money is going. Every dollar that leaves your hands needs to be looked at. Track your spending for at least 3 months. Six would be even better. Life is lumpy and no two months will be exactly the same.
This article includes a spreadsheet to show you how to Track Your Spending: Tracking Your Spending And Why You Should.
Step 3: Use A Budget (At Least For A While)
I know, I know! For some people, budget is a dirty word. But it sets up your mindset and your money for success! You don’t have to use it forever, but for a season, it’s a good plan. There are many good reasons to use a budget. I still use a budget and track my spending. For me, it puts guardrails on my decisions so I don’t lose focus. Put together a budget that you will actually use. It can be pencil and paper, a spreadsheet, or an app. You choose.
Step 4: Set Up An Emergency Fund
An emergency fund is essential for you to be successful with your money. At first, it can be a baby Emergency Fund of $1,000. Then later your can fully fund your 3-6 months of living expenses in your EF. How good would it feel to have $1,000 in the bank!
Most Americans cannot handle a $400 emergency. If your car breaks down and you have to put the repair on a credit card, you have just unwound all the good you’ve been working for. An EF helps you get through life’s bumps.
This explains the Emergency Fund: Why You Need An EF And How To Get One
Step 5: Get Your Employer Match
If you have an employer plan, like a 401k, you need to get the match. Deposit enough money in this fund to get whatever match your employer offers. This is free money!
Step 6: Get Out Of Debt
All your non-mortgage debt needs to be paid off. Debt is the enemy of wealth and you will not be successful with your money if you are paying out 10, 20, or even 30% interest on your debt. It needs to be paid as quickly as possible. This is a Hair On Fire situation!
Step 7: Start Saving Money
After all non-mortgage debt is paid, look at your budget and see how much you can save. How aggressively you save is up to you. The higher your savings rate, the faster you will reach a place of comfort with your money. How much you do or don’t sacrifice now is up to you. Put your savings on automatic whenever possible. That way you’re not tempted to spend the money on something else.
A getting started guide to Saving Money: How To Save Money
Step 7B: Save For Large Purchases
Along with saving for retirement and your awesome future, save for large purchases and pay cash. This is another tactic for financial success. Save up for the next car, set of furniture, or home remodel and pay cash.
The Sinking Fund: Coming Soon!
Step 8: Don’t Buy New Cars
A new vehicle depreciates dramatically in the first few years. According to industry experts, the value of a new vehicle drops by about 20% in the first year of ownership. Over the next four years, you can expect your car to lose roughly 15% of its value each year – meaning the average car will be worth just 40% of its purchase price after five years.
Buy a good, clean, and well-maintained used car – for cash. Let someone else take the depreciation hit!
Step 9: Start Investing
Your money can grow and work as hard as you do. The most common places for investing your saved money are in the stock market or rental real estate. I personally invest 100% of my retirement savings in stocks, bonds, and treasuries.
Investing: How To Start Investing – A Beginners Guide
Step 10: Keep Learning!
Keep learning. I do. Read books, listen to podcasts, and get an accountability partner. You know, that person who is willing to say the hard things because they care about you.
One great resource for someone just getting started is the ChooseFI Foundation’s FI 101 course. It is a self-paced online course that covers the basics. The best part is you’re not alone. There is a great online community where you can ask questions and share your wins.
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What Does The Bible Say?
Here are a few examples of verses on frugality, saving, Emergency Funds, and wise money management.
When they were filled, He said to His disciples, “Gather up the leftover fragments so that nothing will be lost.” John 6:12
Then let them gather all the food of these good years that are coming, and store up the grain for food in the cities under Pharaoh’s authority, and let them guard it. Let the food become as a reserve for the land for the seven years of famine which will occur in the land of Egypt, so that the land will not perish during the famine. Genesis 41:36-36
There is precious treasure and oil in the dwelling of the wise,
But a foolish man swallows it up. Proverbs 21:20
She looks well to the ways of her household,
And does not eat the bread of idleness. Proverbs 31:27
Key Takeaway – Use these 10 Steps to help get a handle on your money and build a better future for you and your family.
Assignment – Start with Step 1 and work your way through Step 10. Your future self will thank you!
Coming Soon – The Sinking Fund