financial health
Budgeting,  Debt,  Investing,  Money Management,  Money Mindset,  Save Money,  Spending

Financial Health – Your Roadmap to Achieving it

Improving your Financial Health is a whole lot easier than it sounds.

It’s so easy, I created a 10 step guide!

You’re welcome!

So, without further ado…

1. Create your Vision

What is it about your financial situation that you want to change or improve? Why are you doing it? How will making these changes better your life?

What’s your Purpose? What’s your belief? What’s your cause?

What motivates you?!

Maybe you want to:

    • Be free from debt
    • Feel the security of having savings
    • Save for your Retirement (Roth, Roth IRA, 401k, Stocks, Index Funds)
    • Save for a large purchase (car, house, vacation, or college)
    • Establish or improve your credit
    • Start giving to charity or other causes
    • Have more time for family
    • Start a business
    • Travel and experience the world

There are many different ways to go about completing this step from scribbling a simple list to some of the more structured systems (SMART Goals, Personal Mission Statement, Financial Blueprint or Find Your Why). How you go about doing this is up to you.

Without goals guiding your actions, what reason do you have to stick with it? Once you have written down your vision, you might put it someplace visible to you. Look back at it from time to time. Remember why you decided to take action. And if your vision changes, update it!

2. What is your Net Worth?

This is where you figure out the current status of your Financial Health. There are 3 categories to be considered.

    1. Assets – anything of value or a resource of value that can be converted into cash.
    2. Income – the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings received in a given period of time.
    3. Liabilities – something that you’re obligated to pay off at some point in the future.

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3. Develop a Strategy to Track your Spending

In case you didn’t notice, I avoided using the “B” word. I’m going to leave budgeting out of this section. More important right now is understanding where your money is currently being spent. Sounds a lot like budgeting, but its not. 

Budgeting is allocating specific amounts of money to various needs or wants. 

Tracking your spending is understanding where you money is currently going. It’s been shown that most people underestimate the amount of money they spend on things such as eating out, groceries, subscription services, etc. Those people are then shocked to the core when they find out the real number. Believe it or not, a percentage of those people will still remain in denial. As if the numbers lie.

So why is this important?

To be aware of your money is to be in control of your money. How can you make a change if you’re not aware of what needs to be changed?

How you track your spending is completely up to you. There are a variety of methods you might try from the manual spreadsheet to the automated tracking system. In the end, you should stick with the method that suits your personality. I, personally, use Mint.

4. Make a Spending Plan or Budget

By this point, you know what your Net Worth is and what you currently spend monthly. So, now it’s time for you to decide how you will allocate your hard earned cash. 

First, you must calculate all those items which recur every month, your needs. Things such as rent, insurance, auto payment, etc. These items tend to be non-negotiable. Once you have that number, it’s time to work with what’s leftover. 

If you find that you spend too much eating out at restaurants, decide what seems more appropriate and give yourself that amount to spend every month. Do this for the most common things you spend money on such as gas, travel, restaurants, groceries, clothing, pet supplies, and so on. This number cannot and should not exceed your monthly income.

Do you have money left over at the end of the month? Good! That money will go to paying down your debt.

Don’t have any debt? Stay tuned!

These amounts can and should be reviewed periodically and adjusted as needed.

5. Build an Emergency Savings

Make a plan to save $1000 for an Emergency Fund. Decide how much money will be set aside and how often. If you already have $1000 saved, can you increase the amount to cover 3-6 months of expenses? 

Don’t skip this step!

Saving is not hard and acts as a safety net as you improve your Financial Health. If you need to, go back to step #4 and make any necessary adjustments to allow you to build your savings.

6. Pay off Debt

Eliminating debt is, in my opinion, the most important step to improving your financial health. This is where we shed those extra pounds so you can start building some real muscle.

In this step you’re going to focus on paying off everything except your house (if this applies to you). Two common methods for paying down debt are the Debt Snowball or the Debt Avalanche. Take your pick, they will both get you there eventually.

If you need to, go back to your Spending Plan and make any necessary adjustments to allow you to beat down your debt. How hard you go at it is up to you, but the faster you pay it down, the more you save on those blood sucking interest payments.

7. Save for Retirement

For a younger person in their 20’s, the thought of planning for retirement sounds sooooooo far off into the future. “I’ve got time. I can think about this later” you might say to yourself. Starting later means we miss out on the most powerful friend we have in achieving our retirement goal — compound interest. Echoed time and time again from retirees, the top regret overall seems to be not saving for retirement early enough.

Start investing 15% of your income into Roth IRAs and tax-advantaged retirement accounts. Automate this process so you don’t have to think about it.

8. Credit

You follow a budget and your spending is under control. It’s time to explore the benefits of using credit cards.

First, if you don’t already do this, track your credit score using Credit Karma. It’s free and simple to use.

Then, get online and start exploring the Credit Card options available to you based on your credit score and spending habits.

9. Saving for College & Paying off the House

Your debt has been erased. You now have savings and you’re not living paycheck to paycheck.

What should you do with the extra money?

If you have a mortgage or need to start planning for a child to go to college, then this is the perfect time to get started!

10. Earn More/Spend Less

This step is all about earning more and spending even less. Not for the light hearted but could get you to your goals much faster.

  • Earn More
    • Get a higher paying job
    • Side hustle
    • Build a business and be your own boss
    • Sell stuff you don’t need!
  • Spend Less
    • Become a Minimalist – Learn to live with less.
    • Don’t have kids or animals. The are very expensive!
    • Live with roommates, family, or in your car
    • Move to a cheaper city, state or even country
    • Buy second hand goods
    • Practice “No Spend” days. Make it a game or personal challenge.

*Bonus*

Celebrate! 🥳

You’ve achieved what very few people ever actually accomplish!

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There you have it.

Looks like a lot when you take it all in at once but it really isn’t. I swear!

Figure out where you stand and tackle the process one step at a time. This is not a race or something you need to try and accomplish in an afternoon.

This is a foundation for life that you build to last a lifetime.

To your Financial Health! 🍻

-Derek

Finance Coach, Foodie, Writer and Traveler. When he is not working, he travels(top of the list is Europe) in search of amazing history and to gorge himself on bread products.

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