Ready to take control of your money? In this article you'll learn the 10 steps you'll need to take on your financial journey to gain control of your money and begin to grow rich. Where are you on the journey?
If you’re like most of us, you graduate and really don’t know much about how to manage your money. For some reason schools don’t teach us how to manage our money. They don’t teach us how to properly prepare for the future.
We leave high school or college with an understanding of algebra and physic but no solid education on money which is so important in our culture to be successful. Often we don’t have an idea where to even begin.
Here is a sky high view of the journey you should take in your financial life. Start with step 1 and continue down that journey until you reach the final step. It will take time, but if you have the desire and motivation to get your financial life in order this list will give you the direction on where you need to go.
1 Discover Where Your Money Is
Your money situation can get ugly really fast. If you’ve had a couple jobs already, you may have multiple retirement funds. Maybe you have a credit card or two. Car loan? Mortgage? Bank accounts?
The list can go on and on and get hard to keep tabs on. This leads to you ignoring your financial situation and / or stressing over all these accounts.
Don’t let this happen to you! List out all your accounts and balances into categories of assets and loans. Know exactly where all your money is and feel the stress melt away!
Learn more in my guide: The Complete Money Picture System
2 Automate Your Bills
Bills are a huge pain. I used to spend hours on them monthly. Not anymore!
Get a handle on all your bills now and eliminate the stress and wasted time for the rest of your life. Use your bank’s bill payment system to schedule automated payments for all your bills.
Schedule the payments immediately after you get paid to eliminate the worry of having the money in your account when the time comes to pay the bill. This has been a game changer for me and I’m sure it will be for you to.
3 Automate and Begin Eliminating Your Debt
Debt is one of the worst money situations you can get into, yet most people have debt. If you have debt, it’s time to get rid of it.
Eliminate all your debt access. Cut up credit cards. Close lines of credits. Do whatever takes to stop increasing your debt. Once you have stopped increasing your debt, automate your debt payments just as you did your monthly bills.
Choose the lowest balance debt and apply most of your money towards that debt while paying the minimum payment on the rest. Do this until that debt has been paid of then choose the next lowest balance debt and continue this cycle until all the debt is gone. Ignore applying this method to your mortgage debt for now
Depending on how much debt you have, this can be a long game, but it will be well worth it.
Learn more in this guide: How to Get Out of Debt: The Ultimate Guide
4 Create a Budget That Works For You
Creating a budget that works for you can be life changing. There are many ways you can budget. Try various budgeting methods to figure out what fits in your life. Paper, spreadsheet, or apps can all work.
List all your discretionary, monthly, quarterly, and annual expenses. Give every dollar you bring in monthly a role. Don’t forget that a budget is not always an exact science. You have to adjust as necessary. If one expense is more than you had budgeted pull from another category and add to another.
Stick with it and you will truly understand where all your money is coming from and going each month, allowing you true control over your monthly finances.
5 Begin Investing 10% in a 401K
If you work for a company and have access to a 401K make sure you are taking advantage of it.
Start by investing 10% of your salary into your 401K. Make sure you are contributing enough to receive your company match. Some companies will even add profit sharing to help grow your 401K even faster.
Ideally your company will allow you to invest in a selection of funds. The best option to invest your funds into is an index fund. Index funds allow you to invest in the overall stock market and have much lower fees than other funds. A S&P 500 Index fund for example, will move with the stock market which has provided solid returns over history.
6 Begin Investing 5% in a Roth IRA
In addition to 10% of your income that you are sending to your 401K, open a Roth IRA and contribute 5% of your income to the Roth IRA. If you don’t have access to a 401K, contribute 15% of your income into a Roth IRA. Just as with the 401K, invest your funds into a low fee index fund like a S&P 500 index fund.
Between your 401K and your Roth IRA you will begin to build great long term wealth.
7 Begin Investing 5% in Personal Investments
In addition to building wealth for the future. It’s also a good idea to begin creating a personal investment account to build financial independence and to stop living paycheck to paycheck.
Open an investment account and connect it to your bank account. (I highly recommend Robinhood) Schedule automatic withdrawals each month to your investment account. Make sure you are investing at least 5% of your income.
You can continue to use index funds or ETF’s for low fee investments. If you prefer, you could also begin investing in individual stocks.
To learn more about investing in stocks, check out my guide: 4 Steps to Making Money in the Stock Market
8 Build a $1,000 Emergency Fund
To truly stop living paycheck to paycheck you need a money buffer for when unexpected events happen. Everytime something goes wrong like the car breaks down, the fridge stops working, or whatever unexpected events happen, you’ll be either struggling or reaching for a credit card to resolve it if you don’t have it.
An emergency fund gives you the cushion you need to pay for anything that comes your way without stressing over how you will pay for it or even grabbing the credit card and going back into debt.
Start with a goal of $1,000 and If you followed step 8 and are saving 5% of your income in your personal investment account, you’ll be there in no time.
9 Build at Least 3 Months of Living Expenses
Once you have established an emergency fund it’s time to set your goals higher and look towards building your fund into at least 3 months of living expenses.
It will take some to get there likely, but once you do you will have the comfort of knowing that you can handle most emergencies that come your way.
If you lose your income or take a medical leave you won’t have to worry about it because you’ll have the money you need to get through it.
10 Eliminate Your Mortgage
The last focus on your list should be your mortgage. A mortgage is often the biggest debt you will have and will take considerable time to eliminate. Once you’ve reached all other financial goals it’s time to set your eyes on the final goal, eliminating your mortgage.
The best way to handle this is to begin increasing your payment as your budget allows. Start small if necessary. Use a mortgage calculator to determine what your payment would be with 25, 20, 15, 10, and 5 year mortgages. See which payment you can afford and continue increasing your payment as you can. You can also use bonuses and pay increases to continuously increase you payment on the mortgage to get there even faster.
Start Your Financial Journey Today
Follow these 10 steps and you will grow rich over time. Don’t wait until you're older. Time is on your side the younger you start. No matter what your age is start the journey today and you’ll thank yourself later in life!