Are you struggling to reach your financial goals? Learn the 10 basic steps to get your finances under control.
10 Basic Steps to Reach Your Financial Goals: Your financial goals might seem out of reach, especially if you’re just starting out and you don’t have much to your name in terms of savings or investments.
10 Basic Steps to Reach Your Financial Goals
But if you follow these 10 steps, you’ll be able to achieve all of your financial goals over time—whether they involve starting your own business, paying off your student loans, or buying your first home—and not just someday down the road. It all starts with the following steps…
1) Start with an Emergency Fund
Whether your goal is to save enough money for a down payment on a house or pay off student loans, you’ll need an emergency fund—and lots of it. Experts say you should have at least three months’ worth of living expenses on hand in case of job loss, medical crisis, etc. Keep in mind that if you have debt (like student loans), having an emergency fund is even more important.
Debt payments are just that: monthly expenses you pay out of pocket every month; emergencies are unexpected, often sudden events that can lead to major expenses if left unchecked. Emergency funds will help keep your head above water until you get back on track. If you don’t have one already, start saving now so that by next year, you’ll be able to cover any big-ticket items like car repairs or home improvements without taking on additional debt.
2) Build an Income Stream
Now that you know what your overall financial goals are, it’s time to build out a way to make them happen. This could be as simple as landing one or two more clients, selling a few more of your products or services, or creating passive income from a real estate investment. The key is taking action today—as you sit here reading these words—to start moving in that direction.
It may not feel like much progress (and it won’t for quite some time), but each step you take gets you closer to reaching your goal and becoming financially free. As an added bonus, when you work toward multiple streams of income at once, they can start to support each other and create even more wealth down the road. After all, nothing helps an extra $100 flow into your bank account faster than having an extra $100 already in there!
If we focus on only one stream of income at a time, we lose sight of our ultimate financial goals. The first step is figuring out where you want to go financially: You need a vision for how much money you want to make and how quickly you want to get there. How do you envision making enough money? What does it look like? Do pictures come into your mind? Are there numbers involved?
3) Use a Budget
Saving for a goal is possible, even in these tough times. But you can’t make progress if you don’t know how much money is coming in and going out each month. If you’re currently not using a budget, start with your income—just add up everything you bring home each month and track it throughout the year. Then take a look at all of your expenses, including rent/mortgage, utilities (including TV/Internet), transportation costs (including gas), groceries, entertainment, and clothing; anything that takes cash out of your pocket every month should be included here.
And when it comes to saving? That goes into a separate category on your budget form: Savings. Once you’ve got your numbers together, divide by 12 to get an average monthly amount. Now set goals based on those amounts. For example, if you earn $5,000 per month and spend $3,500 per month—and have nothing left over for savings or investments—your goals might be as follows: $1,000 saved per month by December 31st ($4,500 total); $2,000 saved per month by December 31st ($7,500 total); or $3,000 saved per month by December 31st ($10K total). Write down those goals and post them somewhere visible so they’ll serve as reminders of what’s important.
4) Eliminate Monthly Expenses
If you’re looking to get a handle on your finances and start saving some money, then look at cutting your monthly expenses. The easiest way to do that is by getting rid of recurring expenses like a gym membership, cable subscription, or even parking fees. By trimming these costs down you’ll be able to make a much larger impact than if you tried to scrimp on groceries or buy cheap gas every week.
In fact, eliminating just one $100 expense per month can help you save an extra $1,200 every year. Start thinking about all those monthly subscriptions as part of your living budget rather than as an essential expense and see how much easier it will be for you to reach your goals with less cost and stress.
5) Contribute to Your Retirement Account
While you’re thinking about how you’ll fund your retirement, don’t forget about your retirement account. If you have a 401(k) or 403(b), start contributing to it now. You can invest up to $18,000 in 2017 for those under 50, and up to $24,000 if you are over 50 (in both cases) and it will lower your taxable income for that year. To make things even better, if your employer offers a match (generally 50 percent of contributions up to 6 percent of salary), contribute enough so that you get that full match.
That way, not only do you get an immediate tax break but also will increase your future pension payout! Additionally, there is no use-it-or-lose-it rule with 401(k)s and 403(b)s: You can save as much as you want at any time during the year. But since most people wait until December 31st to set aside more money than they really need for taxes, why not change that?
The longer you wait to put away extra cash, however, one caveat: Don’t dip into your retirement savings unless absolutely necessary. Once you take money out of these accounts—for anything other than a rollover into another qualified plan—you have 60 days to replace it or face penalties on earnings plus taxes on all withdrawals from both regular and catch-up contributions.
6) Pay Off Debt Quickly in Order of Interest Rates
Start by listing your debt from highest interest rate to lowest. You can then tackle that list in order, focusing on one account at a time. Once you’ve paid it off, you can start working on paying off your other debts. This is a great way to quickly pay down your debt because you focus on only one thing at a time. If it works for weight loss and exercise, why not finances?
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7) Pay off the Mortgage Early
Whether you have a fixed or adjustable-rate mortgage, it’s probably costing you more than it needs to. If you have a fixed-rate mortgage, there are special refinance rates available where you can lower your interest rate by as much as 1% (or even 0.5%). Also remember that if you sell your home within 10 years of buying it, some lenders will forgive your remaining loan balance and give you a refund for any interest that’s been paid on that debt.
But keep in mind: Getting a new mortgage will likely trigger income taxes on any prepaid interest (your loan balance is called principal for a reason), so make sure these savings outweigh those taxes before refinancing. And be aware that if you plan to sell your house soon, taking out a smaller mortgage now could cost you later—you might be able to get a larger loan with better terms later on.
When saving money for retirement or college education, consider using an IRA (Individual Retirement Account) instead of a regular investment account. With an IRA, you get tax breaks upfront when making contributions and then again when withdrawing funds from an IRA—but only after age 591⁄2. The money inside IRAs grows tax-free until withdrawal; after which it’s taxed at ordinary income tax rates unless it’s invested in something like municipal bonds or certain types of stock funds with dividends eligible for reduced capital gains taxes.
8) Get Out of Debt for Good!
Having enough money in your bank account can make all of life’s problems seem small, and not having it is a constant stressor. For most people, financial security doesn’t happen by accident—it takes a great deal of time and effort. If you’re worried about where your money is going each month or if you have no savings, there are steps you can take to improve your situation.
Here are 10 basic tips for reaching your financial goals 1. Make an inventory of your current assets and liabilities: This step may sound daunting, but it’s important to get everything out on paper so that you can start prioritizing. Take stock of what you owe (student loans, credit card debt) as well as what you own (cash in checking accounts, stocks).
Then look at how much income you receive from each source (salary/wages; investments). You’ll be able to see exactly how much money comes into your household each month and will be able to better assess whether or not you have enough cash on hand for emergencies.
9) Invest in Yourself (Find your passion and follow it!)
Chances are you’re working at a job that doesn’t align with your passions or values. If that’s true, make some changes. Take stock of what you enjoy doing and brainstorm a way to work around those things. The 9-to-5 is a thing of the past, but it doesn’t mean you have to sacrifice financial security for freedom (or vice versa).
For example, if you love music, don’t be afraid to pursue it as a career; maybe even find ways to incorporate it into your daily life (even if it’s just giving advice on music via online forums). Passion will always win out in the end.
10) Enjoy Life Without Worrying About Money
Save money regularly. It’s common for people to assume that they can save only a little at a time, so they don’t bother. However, if you only save $20 per week, it will take you about 23 years of saving $20 per week before you have a million dollars saved up!
Making regular contributions is an important habit to develop as an adult. You don’t have to save thousands of dollars each month or stick your savings in an obscure investment account just because others are doing it. If you start small and make consistent deposits into your savings account, you’ll be surprised how quickly those pennies add up.
Also Read: 8 Simple Ways to Save Money in your Everyday Life
Conclusion
If you’re setting out on a new path, it’s easy to feel overwhelmed by all of these different directions you can take. Luckily, there are many paths that can take you where you want to go. The first step is making sure your goals are clear and focusing on what makes them important.
From there, make a plan for how you’ll get there—you might want to break down your goal into smaller steps that can help keep things on track. If one tactic isn’t working, try another until something clicks!
Lastly, stay motivated. When it comes time for a reward along your journey, remember why you started in the first place—and redouble your efforts until it feels like second nature!
