Just like everything in life, if we want to succeed with our financial plan, we must have a solid foundation. I believe the foundation of any financial plan, no matter your age, goal, financial situation, etc. starts with your “why”. Why am I trying to accomplish this financial goal? It is likely that in the midst of achieving your financial goal, life will happen, and potentially throw your goal for a loop. If that does happen, and your “why” is not strong enough, then we will likely make excuses and lose priority of the goal.
After we’ve established why we want to achieve a financial goal, it’s important we take a few steps to build on our foundation…
1. Cash flow is king
Spend less than you earn. This is probably the most important lesson anyone can learn as it relates to their finances. We can have a goal and a strong desire to achieve that goal, but if we don’t spend less than we earn, then nothing can be accomplished.
2. Establish an emergency fund
We know life is going to happen and we are going to have a large expense pop up out of nowhere. Let’s be prepared. Now that we’ve established a cash flow cushion by spending less than we earn, let’s establish an emergency fund for those unexpected expenses.
3. Pay off high interest debt
Okay, we have plenty of cushion for unexpected expenses. Let’s get the credit cards and any other high interest debt paid down.
4. Put saving on autopilot
Now we put our money to work. I recognize that not every has a sweet 401k match to take advantage of, but that still doesn’t mean we shouldn’t save our money. Take the decision out of saving… put your savings on autopilot by setting up automated withdrawals. Take that and the impact of compounding returns and you will thank yourself later… I promise.
There are certainly nuances to this process and everyone’s situation is different that may alter this process a bit. The point is that we are putting a focus on your financial foundation. Things that we focus on tend to improve.
