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.
Track Your Spending
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.
Calculate Your Net Worth
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.
Check Your Credit Score
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!
Invest in Your Future
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.
Protect Your Belongings and Your Family
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!
Spend on Your Values
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.
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13 comments
Yes, yes, yes, and yes. All consistent tips and advice that are easy, yet we rarely do! (We are so lazy as a culture!) The more systems in place to make things automatic, the better chance of sticking with it.
Totally agree!
The one area where we fall short is with insurance. Since my husband is self-employed, we need long-term disability insurance for him. It’s terrible how we can know this and yet not follow through! We will hereby get on it.
The one point I’m not so keen on is the one about credit score. The whole credit score system feeds the debt machine. The best way around it is not to use debt – but I realize that’s very hard when it comes to buying a house.
Gah, I probably need that too 🙁 Yes, the credit system is a whole world I don’t agree with, but sometimes you have to play their game.
These are all critical steps to getting your finances together. It’s so important to protect your family and your income, and one of the ways many people forget is disability insurance. If anything happens to your health so you can’t work, you need to be prepared.
Good point! I should look into that!
SPEND ON YOUR VALUES. <- More of this, please world!
People waste so much time judging others for spending on things that are just *different* priorities than them.
I mean, I'll judge the crap out of someone who cannot afford to do something/anything, but if you like food and I like adrenaline rushes? That's cool, as long as we can all afford the things we choose to spend on. 🙂
Haha exactly!
I think that tracking your spending is a huge first start in getting your finances together. When I meet with new clients they all tell me how much they spend every month, yet once we start tracking it, it turns out that they are spending way more than they initially thought they were. It’s hard to make plans when you don’t have a good grasp on your financial realities and tracking helps you find that reality fast.
This is great advice to get started on the right path. Tracking my spending vs. my income was a big eye opener for me at first. I also believe being properly insured sometimes goes under the radar but it’s very important to protect yourself and your loved ones and it can save you thousands.
Tracking spending is SO eye-opening. The numbers don’t lie!
My favorite piece of advice is spend your values!
Yes, it’s so crucial!