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5 Easy Steps to Healthier Finances

5 Easy Steps to Healthier Finances

They say every journey begins with a single step. 

Your journey to financial success is no different. We often see clients hold back from trying to become healthier financially because they feel overwhelmed. 

The key is to not overthink it, you just have to take one simple first step. The sooner you start, the sooner you’ll reach your intended destination.

Pick one of these steps below, start today, and you'll already be on the fast track to your goals! 

Step 1. Build an Emergency Fund | Whatever your current income is, you need to establish an emergency savings account. Having a financial buffer means you don’t have to hit the panic button or pull out the credit card when "life" happens to all of us. And you’ll be surprised how good you’ll feel by having a little cushion.

To create an emergency fund, you don't have to save large chunks each month. Open a free online bank account and just transfer a little bit every single month to that separate account. The key is to transfer the money every month no-matter-what! Even if you start with transferring just $20 a month, in a year you will have $240 saved - if $50 a month, $600. So get a separate account, and start this month, you won't regret it. 

Step 2. Make a Plan to Pay Off DebtNotice we didn't say "pay off debt"! Before you start trying to pay things off, just start by making a simple plan. 

Here's a quick cheat to figure out which of your debts is most expensive - take your total amount owed (e.g. $10,000) and divide that number by your minimum payment (e.g. $500) that simple math will give you a number, in this example "20". We call that number your "cheat number". Then do the same for your other debts you have payments for. 

After you have cheat numbers for each debt (e.g. 20,15,50, or whatever), list them all on paper from Lowest cheat number at the top, to Highest cheat number at the bottom. On your list start with the name of the debt, the total amount owed, your current minimum payment, and then your cheat number. So your list would look like this:

"Bank of America Credit Card | $10,000 | $500 | 20

"Capital One Credit Card | $12,000 | $300 | 40"

Whichever debt has the lowest cheat number on your list, is the one you should pay off first, because it's the most "expensive" debt you're carrying.

So you know have a written Debt Payoff Plan!  

Now that you have a plan, you've completed the first step you need to take to eventually become debt free. Most people never take this simple first step, so they never make progress. 

You have a plan now, so whenever you get a little extra cash, put it towards that first account on your list. Keep doing this consistently over time, and you'll make great progress towards becoming healthier financially.

Establishing a strong financial foundation is built on eliminating bad debt.   

Step 3. Start Maxing Out Contributions to Your 401(k) | Even if you can’t contribute the max, begin contributing something. If your employer “matches” contributions, then contribute at least enough to get the match - this is free money! 

If your employer does not offer a retirement plan, open an IRA account and make monthly contributions. Again, the key is not how much you put away, it's doing it consistently every month.

Step 4. Start Saving/Investing |  People who save/invest end up with savings & investments – pretty simple idea. 

Worry less about picking the “perfect” investment and more about putting more away. There are lots of great resources that will help you find safe investments – consult with a professional and they can help you understand the best place to start based on your specific goals.

Step 5. (If you have children) Start Saving For College | You should begin saving for college expenses as soon as you can when having a child. The time element of a long-term savings plan works best with MORE time. The sooner you start saving and investing the better off you’ll be.

Key Take Away

Though it may not always feel like it, you have control over your financial life. Taking action can certainly help you feel more in control, and set you on the path to financial health and security. Do you know what people with no debt and cash in the bank can do? Anything they want!

You can get there too, just take that one first step :)

Your Money Matters Inc.
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