When you first realize that you are in need of financial help and that something needs to change, it can be easy to wonder, “Where do I start?”
I remember when I first realized how much debt I was in, I felt so consumed by the number that I felt paralyzed. I wasn’t sure how to move forward or where to begin. Luckily, I have a firm grasp of my finances now and have taken steps to keep my financial life in order.
But if you’re feeling lost and want to get your financial life in order, here are six simple steps to get started.
The first step is so important! Track your spending for at least three months. Every. Single. Purchase. I know it sounds tedious, but tracking your spending offers huge insights into where your money is actually going. It’s easy to think we know where our money is going. But the truth comes out when you track your spending.
You can do this the old-school way via receipts, pen and paper, or use an online tool such as Mint.com to track everything. I personally use Mint.com and I love it! This is an integral part of the process so you can see where your money leaks are. You may be shocked or surprised how much you spend on food or clothes, etc. It can be a painful truth to deal with but it’s really eye-opening and can help you make changes going forward.
The next step in the process is to calculate your net worth. Your net worth is your assets minus your liabilities. Assets are anything that has a monetary value such as your cash, savings, investments, house, etc. Your liabilities are your debts such as student loans, mortgage, car loan, etc.
This is so important as you can see exactly how much money you have saved up and also get a bird’s-eye view of your debt situation. I know for a long time I was in denial about how much debt I was in. I wasn’t quite sure how much I actually owed. So sitting down and calculating everything was so eye-opening for me and gave me the boost I needed to change my situation.
One important note! Don’t let your net worth serve as your self-worth. It can be easy to feel like crap after doing this step if you have a lot of debt like me. Don’t let doing this exercise turn into a moment of self-hatred. Remember, your net worth is not your self-worth. You are awesome as you are, just try to get your finances in order, so you have a positive, strong net worth.
Your credit score is one of the most influential numbers in your financial life. It determines so much of your adult life. Your credit score determines if you get approved for that new apartment or rewards credit card and so much more.
To get your free credit score, you can use Mint.com, Credit Sesame or Credit Karma. Once a year, you should also check your credit report, which is a full outline of your credit history, at AnnualCreditReport.com.
You’ll want to ensure there are no errors and also check in annually to see your improvements. Doing this can also help you identify potential identity theft and other issues. So, stay on top of monitoring your credit score and credit report!
Yeah, we all understand the concept of YOLO, but I assume you don’t want to eat cat food when you are old right? Yeah, neither do I. Start investing in your future, by contributing to your 401K. This is especially necessary if you get an employer match. Hello, free money! You can invest in your employer’s 401K, a Traditional IRA or a Roth IRA. Each one has its own benefits and advantages. The point is to get started.
You can also use something super simple like Betterment.com to get started with investing.
This step is so crucial to protecting your finances. It’s key to get the insurance you need to protect your belongings, your health, and your family.
Make sure you have health insurance, renter’s insurance or homeowner’s insurance, and life insurance.
Health insurance can help you when sickness strikes. I went nearly two years without health insurance and had to pay a hefty bill when I ended up sick. Renter’s insurance or homeowner’s insurance can protect your belongings in case of theft or other natural disasters. Just make sure to read the terms and conditions so you are super clear on what your plan covers — each plan is different.
Life insurance is also important if you have a family. If something were to happen to you, you want to make sure your family is taken care of financially and not stuck in a bind. To get the best price, compare life insurance quotes.
Being properly insured can save you lots of money down the line — it’s easy to think that you don’t need these things when things are going well — but once something happens, you’ll be grateful you invested in these protective measures!
Money is a tool that can be used for things that bring value to your life. Forget the Joneses and do you! Save money where you can, spend money where it matters and invest in your future. Don’t get caught up with mindless crap, but spend money on things that bring value to your life. What do I mean?
Things that make your life easier or better. Or on once in a lifetime experiences. Money can help you live a comfortable, enjoyable life, but you need to use it on what serves you.
Use these six steps to get your financial life in order. Experiment and cover your bases. Compare prices. The key is to be conscious of your finances and not just get into a mindless rut (been there, done that).
You got this.