How to achieve financial security
The financial choices you make and habits you develop will have a big impact on your life. Working through this list of five steps will bring you to a place of financial security.
Toggle accordion
Step one: Understand your cash flow
- Write down your monthly take-home pay.
- Write down a list of your fixed expenses: mortgage or rent, debt payments, insurances, cell phone bills, etc.
- Subtract your fixed expenses from your monthly take-home pay. Let's call the amount you have left your "budget." Write down your budget amount.
- Then use your budget wisely to cover variable expenses (e.g. food, gas, utilities) and discretionary spending (e.g. clothes, entertainment).
- Here's a short video that explains cash flow.
Toggle accordion
Step two: Establish an emergency fund
- It'll take some time, but your first priority should be to establish an emergency fund.
- Aim to save $1,000 from your "budget."
- Set aside $25, $50, or $100 whenever you can.
- In the event of a minor emergency, a $1,000 is usually enough to right the ship without taking on any new debts.
- You can always add to your emergency fund later.
Toggle accordion
Step three: Maximize free money
- After your emergency fund is in place - your next objective is to start saving for retirement.
- If your employer offers a 401(k) match, make sure you're contributing enough to receive the full benefit of their match.
- Otherwise, you're leaving free money on the table.
- Note: contributing to your 401(k) will reduce your take-home pay. This will impact your "budget."
Toggle accordion
Step four: Prioritize your debts
- Write down a list of all of your debts.
- For each debt, write down the number of payments remaining and the interest rate.
- If you have the money to make an extra payment, make sure its on the loan with the highest interest rate or the fewest payments remaining.
- Each of these repayment strategies has its own merits.
Toggle accordion
Step five: Double down
- Whenever your income increases or your expenses decrease - don't blow this money!
- Double down on the good money habits you've developed.
- Put more money into your emergency fund.
- Increase your 401(k) contribution.
- Make extra loan payments to reduce your debt.
- This discipline will pay off in the long run.
To the Top