At one point in life it occurs that we should be saving for the future. Many people, due to upbringing or circumstance, have never thought about saving or investing. This post is written for those people. It’s not a bad thing to be one of them. I’m one of them and so are most of my friends and family. The general public doesn’t know much about money, but we’re learning.
In all my research these are the five steps that come up again and again. If there are any steps missing or things that need to be added please leave a comment below.
1 – Reprogram your brain. This involves learning the truth about debt, compound interest, consumerism, and identifying harmful behaviors. Once you know the truth about money and how it works your actions will fall in line. Trying to do the next steps without first reprogramming your brain will complicate the whole process. Be sure to involve your spouse or significant other on this first step. If you don’t, misunderstandings and conflict will surely arise. When you both understand the “why” of money theory applying the “what”, or the specifics, becomes much easier.
2 – Make a budget. This is the framework that you’re financial success will be built on. Your budget can be simple and straightforward. The more you use it the more it will help you will all of your goals.
3 – Pay Down debt. Develop a plan to pay down and consolidate your debt. Call your creditors and ask for lower interest rates, special payment plans, and other perks to help you achieve your goal. Now, pay off those creditors that are charging the highest interest. After you’ve paid off the big offenders use that same money to carve down your other debts. For example, Let’s say you were paying the first creditor in line $100 a month and the second creditor in line $20. After you’ve paid off the first creditor pay the second creditor both the $100 and the $20 a month instead of only paying the minimum of $20. Follow this principle until you’ve paid everyone off. If you’ve truly reprogrammed your brain the idea of paying off your debt should be very exciting to you.
4 – Get an emergency fund. You could be working on this step at the same time as the third step. If all you can afford to put into your emergency fund is $10 a paycheck then do it. Over time you’ll soon have a nice safety net to rely on. Whatever you do don’t spend your emergency money on anything except for a true emergency. There are a lot of opinions on how much you should have in your fund. Some people say to have enough for 90 days without work, others say $1000. Whatever you decide on work until you’ve achieved your goal.
5 – Open a Roth IRA. You should plan on keeping your money here for a very long time. Don’t invest your grocery money or your emergency fund. In other words, this is money you don’t need right now. Opening an IRA requires some research but the signup process is fairly easy. Once everything is set up you can start learning about investment strategies. There are many opinions on investment strategies but it really comes down to what works best for you. Luckily, there are many low risk investment options available for the beginner.
Hopefully these steps will help you see the steps required to get your financial feet underneath you. This list doesn’t even scratch the surface on most of these subjects. There are literally millions of pages written about these topics. But as a starter list this is a good way to map out your future plans.