Your finances need help. You have debt that you’re not sure how to tackle, you aren’t saving money and you feel like you can’t get ahead.
I’ve been there. I know what that feels like. I was a full time single mom with no savings, no home and no career path to earn the money I needed for financial security. What I did have was determination. I established a plan and then stuck to it. In just a few years I turned everything around and finally felt comfortable. So comfortable that I changed my goal to save for financial independence and early retirement, because I knew I could.
Here’s the exact steps I took, and what you need to do today to take back control and set the path to achieve financial security.
Contents and Quick Links
- 1 Track your spending
- 2 Payoff debt
- 3 Establish a budget and start saving more money
- 4 Calculate your net worth
- 5 Review and optimize your retirement plan
- 6 Define your financial goals
- 7 Create an action plan to achieve your goals
- 8 Recap
- 9 Action Steps
Track your spending
I know I’ve said it about a million times across this blog, but it’s so true. If you don’t know where you are now, you have no clear path to follow going forward. You’re left wandering aimlessly with little understanding of why you aren’t making financial progress.
The very first step you can take to clean up your finances is to start tracking your spending. Learn your habits and find the areas that could use improvement.
Whether you save receipts, keep a journal or use an app like Mint, take some time to review every dollar you spend for three months. One month isn’t enough to flush out some habits but three months is a good amount of time to even out some fluctuations.
For some helpful tips on how to get started tracking your finances, be sure to read How To Track Your Personal Finances. You can also download a helpful workbook and worksheet from the FREE Resource Library.
If you have debt, it’s time to get serious about how you plan to pay it off. Simply making those minimum payments may eventually get you there, but a good plan can get you there faster, with a lot less stress.
There are two methods to consider.
With the snowball method you list all your debt from smallest amount to greatest. Make the minimum payments on each debt, then apply what you have leftover to the smallest debt. Once that it paid off, you have more money to apply to the next smallest debt. Just like a snowball gaining momentum as it rolls down a hill, your debt payoff will begin to accelerate as you make progress.
With the avalanche method you list all your debt in order from highest interest rate to lowest. Then you make the minimum payment on each debt and apply everything left over to your debt with the largest interest rate. Since that debt could also be your largest debt, this method saves money overall in interest payments but could take much longer to feel like you’re making progress.
Whichever method you choose, or even a combination of both, make a plan and consistently stick to it.
You can read more about how to payoff debt: How To: Pay Off Debt Like A Boss.
I also have a workbook with a handy debt progress printable in the Resource Library.
Establish a budget and start saving more money
Once you know how much you are actually spending every month, and how much you need to apply towards your debt, you are ready to create your budget.
This budget will help you go through all your common spending categories and set limits on how much you really need to spend. Notice I said need, not want.
Your expense tracking of the last 3 months likely demonstrates how much you want to be spending. Now you get to think about each category and ask yourself how much you really need to spend.
For example, if your food category contains the subcategories restaurant dining and groceries and you are spending an average of $1200/month, see if you can cut that back to just $800/month. You can do this by eating out less, meal planning and smarter grocery shopping.
Tip: check out 11 Tips To Save Money On Groceries
If you can cut that spending back by $400/month, now you have an extra $400 for debt payoff or savings goals.
For more info on creating your budget, visit The Beginner’s Guide to Creating a Budget You Can Stick To. Again, visit the Resource Library for some helpful Monthly Budget worksheets.
Develop your plan to save more money
Once you have your budget, you know how much money you can free up to go towards debt or savings. Here’s the thing, even if you have debt, you need to save money, too. It’s called paying yourself first. You need to be saving money, for emergencies and for a secure financial future.
How you choose to fund each category is up to you. I recommend doing your best to save 10% of your gross income, then working hard at that budget to apply everything left over to your debts. If you can’t start this high because your monthly expenses and minimum debt payments are more than this, save less then work your way up as that debt gets paid down.
I wrote an entire post about the importance of paying yourself first. Be sure to read it if you need further convincing! Pay Yourself First – The #1 Wealth Building Secret.
Calculate your net worth
This one is often overlooked but can provide so much motivation for you to keep chugging along and making progress.
Your net worth is simply everything you own of value minus your debts.
Here’s an example:
- Home value: $150,000
- Car value: $21,000
- Random household items and valuables: $4,000
- Savings: $1,000
- Checking and cash: $3,000
- Total = $179,000
- Mortgage: $120,000
- Car loan: $12,000
- Credit card debt: $6,000
- Student loans: $18,000
- Total = $156,000
Net worth = Assets – Debts = $23,000
If you have a lot of debt to pay off, don’t be too discouraged if your net worth is negative. Small changes can make a big difference. Knowing your net worth tells you exactly what your financial state is and allows you to track your progress moving forward.
For a more detailed explanation on how to calculate your net worth and why it is so helpful, visit How To Calculate Your Net Worth – And Why You Need To.
Review and optimize your retirement plan
If you’ve made it this far, take a moment to appreciate your progress! Once you understand your finances, create a budget so that you can save more money and develop an action plan to payoff all your debt, you’re in good control of your finances. And that feels amazing!
Now it’s time look further ahead and review your retirement plan.
Many Americans are not prepared for retirement. Here are some scary statistics from the 2018 Northwestern Mutual Planning & Progress Study demonstrating just how underprepared Americans are for retirement:
- 21% of Americans have no retirement savings
- 33% of Baby Boomers have less than $25,000 saved
- 46% of American adults have taken not steps to prepare for the likelihood that they could outlive their savings.
- 55% believe that they will have to work past age 65 years
Fortunately, this doesn’t have to be you! If you have an employer sponsored retirement account, take advantage of it. Learn how to give it a thorough review and optimize it so you can stay on track to achieve your retirement goals. If you aren’t sure how to go about doing this, read through How To Rock Your Employer Sponsored Retirement Plan.
If you don’t have this option (because you are self employed or work part time) and have no idea how to find the right retirement plan that’s right for you, visit The Ins and Outs Of Retirement Plan Options. This article goes over all the main types of retirement plans, as well as the pros and cons of each.
Define your financial goals
“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
– Alice In Wonderland by Lewis Carroll
Without defining your financial goals, you have no direction and path to follow. You will make progress, but you will fall short of achieving what you are actually capable of. If you want to live your best life, and attain financial security, you need to set some goals.
Luckily, this is the fun part! Start by asking yourself what you dream of accomplishing 10 years from now. What should your finances look like?
Do you want to send your kids to college, live overseas, or retire early? It may seem like the future is a really long way away, but it’s never too soon to start planning.
Spend some time on this step. Determine what is really important to you and what you wish you could accomplish, then determine how much money you will need to have saved in order to accomplish this goal. Once you know this, you can work your way backward and determine how you will save that money and how long it will take you.
Here are a couple posts to help with setting long term goals and financial goals:
Create an action plan to achieve your goals
People with goals succeed because they know where they’re going.
– Earl Nightingale
Now that you know where you are headed, and how you will get there, it’s time to develop some habits to ensure that you stay on track.
The first step is something you hopefully did when you defined your long term goal. Look ahead to where you want to be, then break it down into smaller, short term goals that need to be accomplished along the way. Focus on that first short term goal and break it down even further into tasks you need to do this week, and today, to accomplish that smaller goal.
Over time you will accomplish a lot of small goals that all lead up to achieving your bigger, long-term goal.
I believe that this step is super important. You can goal set all you want, but without action you simply won’t get anywhere. But that action needs to be focused and intentional!
*This post contains some affiliate links for your convenience (which means if you make a purchase after clicking a link I will earn a small commission which helps keep my blog up and running but it won’t cost you a penny more)! Click here to read my full disclosure policy.
One book that has been a life changer for me is The ONE Thing, by Gary Keller and Jay Papasan. If you struggle with making progress and want learn how to break things down into the ONE Thing you could do today that would make all the difference for your tomorrow, I highly, highly recommend it!
For further reading (because of course I have more articles on achieving your goals!)
If you feel overwhelmed and financially out of control, either with debt or a frustrating inability to save money, there is a solution. You can make progress. With a plan in place, the stress and overwhelm will die down and you can begin to build confidence in your ability to build a secure financial future.
All it takes is an actionable plan. I’ve outlined the exact steps that I took, and many others I’ve talked to, to gain control and make progress. I went from zero savings and no career prospects to laying the pathway for financial independence. It’s not difficult. It simply takes a plan and consistent, intentional, action.
To make this journey even easier, I have created a FREE email course to help step you through each of these steps. It’s call 7 Steps to a Financial Clean House. It includes everything I mentioned here, but has all the details you need to jump in and get started.