Taking the First Steps on Your Financial Journey

by Mike on January 11, 2010

Taking the First Steps on Your Financial Journey

A journey of a thousand miles begins with a single step.
Lao-tzu

Congratulations! You have made a conscious decision to DO SOMETHING about your finances. Um…now what?

These steps are designed to guide you through the first steps of your financial journey. Perhaps you stumbled across this page and this isn’t your scenario…maybe you are further along in your personal finance journey. I’d still love to hear about your first steps in the comments.

1.Declare TODAY that you will no longer be a slave to debt! Go on…say it out loud. Make this declaration to yourself, the Lord, and an accountability partner.

This is my declaration: Lord TODAY, I will tip the scales in my favor. I will be a good and faithful steward over ALL you have blessed me with

Action steps

a.Write your own declaration & place it somewhere you will see it on a regular basis (car, wallet, mirror etc)
b.Find an accountability partner. This needs to be someone you can trust and will encourage you on the journey.

2.Pull your credit report from somewhere like www.annualcreditreport.com. By law, you are authorized one free credit report a year from Equifax, Experian, and TransUnion. You can either pull them all at once, or pull one every four months. If you have not looked at your credit report in a while, I would suggest pulling all three.

steps to financial journeyAction steps

a. Examine your credit reports for any errors. If you notice any accounts that do not belong to you, contact the credit company to report the error. According to a 2004 survey from the national organization of state Public Interest Research Groups (U.S. PIRG) around 80% of credit card reports contain errors. Do not skip this step.

3. Print the last 3 months of bank statements. Determine where your money is going. Determine where you can cut spending. This extra cash will be used to pay off debts and start an emergency savings fund.

Action steps

a. Highlight & categorize spending.

b.Look for areas you can cut back (eating out, subscriptions, cable, etc). Depending on the gravity of your situation, be prepared to make sacrifices, but be realistic.

c.Theoretically, how much are you saving with the proposed cuts? Make a note of that number…you’ll need it a little later. Allocate a percentage for debt payoff and a percentage to fund an emergency savings account. How much you use to save vs. payoff debt will be determined by your own preferences and risk tolerance. Conventional personal finance wisdom suggests at least $1,000 in an emergency fund, so if you don’t have that…concentrate at least most of your new cash flow there.

4.If you are behind on any bills, call the creditors to make payment arrangements. Be prepared to negotiate. Stay calm, courteous, and professional. Do not promise more than you can afford. If you are making timely payments you can skip this step.

4b. List all debt (including personal loans), the interest rate, and the amount. List them in order of priority. Focus all extra income (that percentage you allocated in 3c) to paying this debt. Pay the minimum on all others. For starters, I’d suggest the debt snowball method outlined byDave Ramsey in Total Money Makeover in which you pay the debt with the smallest balance first.

All Debts

Reorganized w/Snowball Method

Car loan | $13,000 | 6%

Credit card 2 | $250 | 10%

Credit card 1 | 1,500 | 18%

Uncle Joe | $300 | 0%

Uncle Joe | $300 | 0%

Credit card 1 | 1,500 | 18%

Credit card 2 | $250 | 10%

Car loan | $13,000 | 6%

Action steps

a.Make a list like the one above. Using the percentage allocated to payoff debt in 3c. How long is it going to take you to pay off the first debt in your list? You can use one of this debt calculator to figure it out. Make a note of that date and mark it on your calendar.

5.Set up an emergency savings account. This should be in a different bank from the one do your normal transactions from. I recommend a high yield savings account online bank like ING Direct or FNBO Direct. If you do not have any savings, set a goal of $500 or $1,000. Give yourself a time limit to meet that goal. I will save $_________ in ________ months. Using the percentage allocated for savings in 3c to set an attainable goal.

Note: I’ve personally used ING direct since 2004 and I love them! Great customer service, the ability to setup sub-accounts, and no minimum to open an account or outlandish fees are just a few of the things that make them a top-notch choice for me.

6.Evaluate your plan every 30 days. Keep in touch with your accountability partner, and remember to reward yourself every once in a while for the small victories.

Stay encouraged!

Start your journey with this FREE Personal Finance Journey worksheet >>>

What about you?
Are you beginning your financial journey or a few miles down the road? I’d love to hear from you! What additional tips, suggestions, and words of wisdom do you have for those who are starting their journey?

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