This article is for financial beginners. The first steps on your financial journey are intimidating, confusing, and stressful.
We’ll fix that today.
So in simple terms, here are the first 4 steps you should take to gain your financial footing.
1) Start a Budget
Last week I wrote:
“Stress is directly related to how out-of-control we feel.”
Does money make you feel out of a control? A budget can help you.
A budget accomplishes two tasks. First, it plans your spending ahead of time. Second, it measures your spending after it’s happened.
That’s it. A budget is simply a planning and measuring tool for your money. That act of measuring will make you feel in control of your money. In control = less stress.
Further reading on budgeting:
2) Build a Small Emergency Fund
Basically, this step equals = “Get $1000 in a bank account.”
This acts as your first safety net against bad luck in life. It’s that simple.
If you have less than $1000 in your bank, focus on this step!
Here’s a fun story about why an emergency can be so important.
3) Pay Down High Interest Debt
Your money is a bucket, and debt is a hole in that bucket.
The higher the interest rate on your debt, the bigger that hole.
This step asks you to find the biggest holes in your bucket and plug them as fast as you can.
“High interest,” to me, is anything above 8%. For example, most credit card debt is in the 16-20% range. That’s a hole you need to plug ASAP.
Most mortgages, car loans, and college debt do not meet this “high interest” criteria. You should worry about them later.
4) Get Your “Employer Match”
Many employers offer retirement accounts to their employees. Better yet, most employers will give you free money if you invest in your retirement account. This is called the “employer match.”
It’s not a gimmick. You should maximize this opportunity.
As I wrote here, this free money is guaranteed to help your financial life.
Then you have to invest that money. Unsure how? Here’s how I invest.
5) What’s Next…?
There are many more steps after this. But these first four will take you from “I am completely lost” to “now I am somewhat found.” That’s a great start.
If you want to go further, download this free version of The Financial Order of Operations. It has many more steps that you can—and probably should—take on your financial journey.
Thank you for reading! Here are three quick notes for you:
First – If you enjoyed this article, join 1000’s of subscribers who read Jesse’s free weekly email, where he send you links to the smartest financial content I find online every week. 100% free, unsubscribe anytime.
Second – Jesse’s podcast “Personal Finance for Long-Term Investors” has grown ~10x over the past couple years, now helping ~10,000 people per month. Tune in and check it out.
Last – Jesse works full-time for a fiduciary wealth management firm in Upstate NY. Jesse and his colleagues help families solve the expensive problems he writes and podcasts about. Schedule a free call with Jesse to see if you’re a good fit for his practice.
We’ll talk to you soon!