When your personal financial foundation is solid you can more easily reach your financial goals and handle any financial stress from the markets, job loss, etc. with a clear mind. There are five steps everyone can take to start building their solid financial future.
1. Set Your Goals
Alright, first and foremost you need to understand why you want to have control of your money. This is the time to focus on yourself. If you are saving or wanting to start budgeting for someone else… well, I hate to break it to you, but you aren’t going to stay committed to the plan for very long. You must get to the root of why you want to control your finances. You need to buy into it and have it be for you, or you’ll have a difficult time with the next four steps and completing your financial foundation.
2. Know Where You’re Spending
The second key to creating a solid financial foundation is to make sure you are spending within your means. This is a simple concept, spend less money than you make. We sometimes harp on this, but it’s something that seems to get overlooked every day. If you spend more than you make then you have to stop. Understand how much of your paycheck you can spend every week, and even what you can spend on a daily basis to be within that. If you are spending more than you make you can’t reach any financial goals like saving for retirement, paying off debt or buying a new house. This is an important piece of your financial situation because it allows you to later build on top of your foundation.
3. Prioritize Your Spending
We then want to make sure we know where our money is going. Tons of people get into trouble because they simply don’t know where their money is going. You might have recurring charges for iTunes, Netflix, magazine subscriptions, etc. Suddenly you’re at the end of the month, and you don’t know where all your money went. You need to know where every dime goes.
This was an issue my wife and I were having and the impetus behind us going on the Economic Shutdown. We took one month earlier this year to make sure we understood where every penny we spent went. By watching where we spent our money and cutting out as much superfluous spending as possible, we found a way to save 35% of our paychecks that were deposited into our checking accounts! You can read the full account of our adventure here, and we will soon have an eBook coming out. Sign up as a user and we’ll let you know when it’s available.
4. Prioritize Your Saving
Make sure you keep focused on the long term. It’s easy to crave and achieve short term positive outcomes, but understand the decisions that you make today and how they will impact your future. Rewarding yourself by spending your new savings on a night on the town instead of saving that money in your 401k might sound reasonable today, but how is that going to impact you in your 40’s, 50’s and 60’s? If you build good financial habits early, like saving for retirement, it will actually cost you less in the long run.
5. Don’t Mix Money & Emotions
Finally, the last key is to control your emotions around money. Maybe you’re an emotional shopper, and after a bad day you think buying that new purse will turn your day around. Perhaps after a fight with a friend you feel the need to order a large Domino’s pizza. Whatever your spending crux, if you act on the desire to spend money when you’re emotional then it’s more likely to be a purchase that’s ultimately equivalent to flushing cash down the drain.
The biggest reason for having a solid financial foundation is it allows us to safely build on top of it. On top of this foundation is where we start saving for our emergency reserve, paying off debt, saving into our 401k or a Roth account and begin to boost our wealth for the longer term. Without our solid foundation, everything we build above it will crumble in an emergency.
Wela means wealth, and the only way to build wealth is to first create a solid foundation. We spend a lot of time with our users and helping to create a financial game plan. This can help you to create a solid financial foundation which will then allow you to build your wealth on top of that. Just sign up and let’s get starting on building your solid financial foundation.