You want financial prosperity, and I want that for you as well. In fact, I want you to get whatever you want out of life.
In order to do that, you need to be financially secure-something only a small percentage of Americans are. Being financially secure means not being broke, living paycheck-to-paycheck. It means not drowning in credit card debt. It means having money in the bank, and consistently investing to reach financial goals.
All those things are available to you, but you’ll need to roll up your sleeves and get to work.
Have you ever thought about why trains run on tracks? There are a lot of reasons, primarily because it’s smart and efficient. There’s a lot less friction, low risk of running into other trains, and the tracks are highly durable so the trips are repeatable.
Our brains also have their own version of train tracks called neuro pathways. The more times we complete an act, the deeper and stronger the pathway becomes. This is one reason bad habits are hard to break; our brains don’t differentiate between good and bad habits.
My goal here is to give you a new, but temporary track to run on. A track that will help you derail any bad financial habits you may have, and allow you to create beneficial new tracks and habits. Tracks and habits that will actually get you where you want to go.
I’m going to share a 7-step process which will take you to financial security and peace of mind. Once you’ve achieved that, you’ll be in a position to go after financial prosperity. It’s a simple process, but not an easy one. One that you’re more than capable of following and completing.
As a financial advisor, I’ve been helping people become financially secure for over 20 years. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- Bad versus good habits
- Becoming financially secure
- An effective and temporary intervention
- Pursuing financial prosperity
Let’s get started.
Bad versus good habits
Bad habits keep us stuck and moving away from the lives we want. And they’re really hard to break.
Good habits help advance us forward, towards the things we want. Each of us can remove a bad habit and replacing it with a good one. There are three things which are required to do this; desire, knowledge, and space.
If you don’t want to change, you won’t. That’s why desire is essential.
You’ve got to know how to do the thing you want to do. That’s why knowledge is necessary.
Without the right amount of space, any new habit won’t have room to take hold. If you’re unable to make room in your life for what you want, you will not get it. As you’re considering whether to pursue my recommended path to financial security, make sure you take those three things into consideration.
Becoming financially secure
What does financial security mean to you?
For me, it’s freedom from stress and anxiety about money. It’s no longer worrying about being able to pay my bills.
Peace of mind is a feeling of being safe and protected. That’s what I want for you to have with money.
An effective and temporary intervention
I’m not trying to enroll you in a lifetime project. And this is also not a quick fix. This 7-step process will take you as long as it needs to take. The way out of an unpleasant situation is very similar to how you found your way into it; one small step or action at a time.
Here is the 7-step process for becoming financially secure:
Step 1: Know yourself
In the context of financial security, you have to know your beliefs about money, get clear on your financial goals, and have a firm grasp of your values.
Beliefs
If you’re serious about changing your financial life, this is critical. You’ve heard Henry Ford’s quote “whether you think you can or you can’t, you’re right.” That applies here. If you think you’re going to be financially successful, you have the chance to be. If you don’t, financial success will be very hard for you to achieve.
It all comes down to our operating system. Just like our phones have them, so do we. They’re constantly running in the background, taking in information and planning responses. Think about a polarizing subject and what your response to it is; Donald Trump.
What was your response? Don’t overthink it. What was your initial gut response?
For financial matters, we have beliefs about money which influence our thinking and our behavior. These beliefs were installed when we were kids and while we’re constantly getting updates, the original programming will be there until we proactively change it.
That’s the good news. You can change your beliefs and your brain.
How do you know if you have negative or limiting beliefs about money? Pay attention to your triggers and your behaviors. Are you triggered by people you perceive to have money? Are you triggered by certain cars or brands? Do you avoid certain activities like budgeting?
When you realize what you’re triggered by and or what you’re avoiding, you can then investigate their origins.
For example, I was raised by a single mother who was a teacher and we were middle class. There was never enough money to go around. Once a month, my mom would “pay bills” and my brother and I knew to stay out of her way.
That experience of scarcity caused me to avoid financial matters (even though I worked in finance). I didn’t keep a budget; I waited till the last minute to pay bills, and I put off filing taxes for as long as I could.
Once I made the connection, I could change my beliefs and, therefore, my behaviors around money.
Goals
In order to reach our destination, we need to figure out where we want to go. That’s what goal setting is.
I’ve always intellectually known the value of having goals, but it took me until I was 35 before I actually did it. Goal setting was always abstract to me and I didn’t know where to start. To help make this process easier, I encourage you to think about what you want to accomplish in these six areas.
Family
Community
Money/Career
WellBeing
Personal Development
Peace of mind
It’s really important that you think hard about what you want in each of these areas, and that you actually write it down.
Getting clear on what you want your life to look like will help you prioritize your financial decision-making today. For example, knowing you want to help your kids with their tuition in 15 years and that you’d like to stop working in 25 years will help you be more prudent with your spending today.
If you’re ready to dig into your beliefs about money and your goals, you can access our Goals Course at no cost.
Values
“There are no solutions. There are only trade-offs.” – Thomas Sowell
Goals are where you’re going, values are how you’ll get there. Every time you say “yes” to something, you’re saying “no” to something else. When you get clear on what you value, you develop an efficient method for deciding how you’ll use your money. You’ll decide on what you’ll spend it on, and what you won’t. These days, you can even make values-based decisions within your investment portfolio.
Once you’ve identified your values, you can invite accountability and expectations of yourself and others. That’s what it means to be “on the hook” and that’s a big part of what it means to be a leader. Think of it like this: “This is who I am, and this is what you can expect from me.”
Consider doing this exercise for three major areas of your life:
- Personally: Once you’ve decided on your core values, you’ll know if your thinking, decision making, and behavior are aligned to them.
- Your family: As a family, deciding on what your core values are will give you the same benefits as they do for you as an individual. You’ll collectively know if what you’re doing is aligned.
- Your community: Community comes in many forms. It can mean your neighborhood, business, or clubs. Once you’ve made it known who you are and what you believe in, others can know what they can expect from you. Imagine a world in which everyone was clear in what others can expect from them and what they can expect from others.
To help you gain clarity of your personal values, you can access our Values course for free.
Step 2: Know your facts
In the context of financial security, your facts are your cash flow, budget, and credit.
Cash flow
This isn’t a complicated concept, but it’s an integral one. You have to know how much money you have coming in each month and how much is going out. Odds are, you have a better sense of how much is coming in, because it’s probably more consistent. Our spending is more variable, but when you track it, you’ll get a clearer picture.
To track your cash flow, review the statements for every way you spend money (credit cards, debit cards, etc). As you’re getting started, do this monthly.
The first time you do this, I want you to go through the previous 12 months’ worth of statements. Here’s why; you’re looking for recurring charges and for things you’re spending money on that you no longer value. I remember going through this exercise with my wife for the first time and finding hundreds of dollars of monthly expenses for things we no longer use.
If you find expenses you’re not sure about, pause them to see if you’ll miss not having them. You can always sign up again.
Budget
Budgeting is simply having a plan for your money.
I don’t love budgeting, and my wife keeps our household budget. Over the past 10 years, I appreciate the benefits of having a budget. We know we’re on track to meet our goals and objectives. We know if we can afford something, and when we can’t.
A budget is empowering.
There are a lot of ways to keep a personal budget. You can use a spreadsheet or an app. Here’s a post on finding the method that’s right for you.
The 50/20/30 budget guide is a great way to get started. It’s also a great indicator of whether your spending is going to lead to long-term financial success. Here’s a post on how to get started with 50/20/30.
Whatever you choose, keep this in mind. Budgeting is not a game of perfect. Some months you’ll be on budget, some months you’ll be over. What’s important is you continue to track and refine it.
As you’re getting started, review your budget monthly. Once you’ve been budgeting for a year, you can shift to quarterly reviews.
Credit
A credit score is a number from 300 to 850 that measures your credit-worthiness; meaning your ability to pay back money you borrow.
Banks want to lend money to people who are likely to pay them back. With that in mind, the cost to borrow money for someone with a credit score of 850 will be less expensive than the cost for someone with a credit score of 300.
A credit score above 700 is considered “good,” and working to get a credit score of at least 620 is a wise initial goal because that will allow you to do things such as quality for a conventional home loan.
The better your score, the lower the cost of borrowing money.
To understand your current credit situation, here are four simple steps to take.
- Get a copy of your credit report. You’re legally entitled to a free copy every year from sites like AnnualCreditReport.com
- Figure out your credit score. You can contact your existing lenders (Credit card companies, student loan providers, auto loan providers)
- Get your personal budget together If you don’t currently keep a budget, you can learn how to develop one here)
- Get a total accounting of all your existing financial accounts (Credit cards, bank accounts, auto loans, home loans, investments, etc)
Becoming a good steward of your credit will help position you for financial security.
Step 3: Your initial emergency fund
Get $1,000 saved in an account separate from your everyday checking account. Several years ago, research came out that over 60% of Americans wouldn’t be able to come up with $500 in case of emergency. That’s a problem.
$1,000 is enough to cover most minor emergencies like car trouble. Your emergency fund needs to be a bank account that is separate from your everyday checking account. This is a practical decision, so you don’t accidentally spend it. It’s also a psychological decision to show yourself you can save money.
If your bank tries to charge you to have an additional account, find a new bank. There are plenty of online banks that would love to have your business.
If you don’t have $1,000 saved, stop doing any other saving and investing until you get there.
Step 4: Putting yourself first
The Golden Rule of personal finance is “pay yourself first.” If you’re in the habit of paying everyone else, and then paying yourself, you’ll get to the end of the month and there won’t be any money left for you. If you’ve ever lived paycheck to paycheck, you know this to be true.
Even if you’re only contributing 1% of your earnings, you’ve gotten started. Saving money is an activity that is best automated, especially as you’re getting started. I can attribute a lot of my success in life to forming good habits.
As time goes on, and you accumulate money in your account, your confidence will increase as well. Enroll in your company’s 401(k) or open an IRA and begin contributing.
Step 5: Continued progression
The next step is to get one months’ worth of your monthly expenses saved.
Setting up your initial $1,000 emergency fund was an important step. Now it’s time to increase it. By going through your cash flow and setting up your budget, you should have a good handle on your monthly expenses. Put a plan together to save one month’s worth.
For example, if your monthly expenses are $5,000, and you’d like to get to that number in one year, you’ll need to save around $417 a month. If you want to get there in six months, you’ll need to save $834 a month.
Step 6: Digging out
Credit card debt is a burden you must get out from under. It’s time to develop a plan to eliminate credit card debt and execute the plan.
Before I go any further, please know I understand how difficult this may be. It will not be easy to achieve the last steps in the process, but it will be worth it.
You’re someone who can be debt free. You’re someone who can be on the path to financial success.
Once you’ve got one month’s worth of expenses in your emergency fund, it’s time to eradicate your credit card debt and any other revolving debt (store accounts, personal loans, etc). I chose “eradicate” because I want you to treat this debt for what it is; one of the worst things in your life.
Start by getting an accurate accounting of how much debt you have and details such as annual percentage rates and minimum monthly repayment amounts. When you have that information, you’ll be able to put a plan together for paying it all off.
For additional help/guidance, you can access our Get Out of Debt course at no cost. It will help you get organized and develop your plan for becoming debt free.
One of our Partners, Dovly, can help clean up your credit.
Step 7: The end of the line
The last step to financial security is getting six months’ worth of monthly expenses saved.
You should have more funds available to devote towards this goal since you’ve eradicated your credit card debt.
Start with two months, then three, then four, then five, and finally six. Before the pandemic, I would tell people they should have “three to six months” saved up. Now, because of the uncertainty we’ve all experienced, I recognize the importance of having six months.
There are no guarantees in life. Bad things happen. Having six months’ worth of expenses puts you in a position to withstand bad things.
This can take you a long time. But it’s worth it.
Once you’re debt free and you’ve got six months of expenses saved up, you’ve achieved financial security.
Pursuing financial prosperity
It’s my desire for everyone to achieve financial prosperity. To have and enjoy the lives they want.
I know that before that’s possible, financial security must be found. When you’ve completed these 7 steps, you’ll have financial security. You’ll have developed new habits and routines, you’ll have grown your confidence, and you’ll have reached a new level.
The challenge and opportunity is locking that new level in and making it your new normal.
Changing your life requires an integrated approach. It requires you to look at your history with money. It requires you to look into the future for what you want your life to look like. And it will require you to take a hard look at how you’re currently interacting with money.
This change will also require you to embrace discomfort over comfort. It’s natural to want to revert to old habits.
But those habits didn’t serve you.
In order to achieve financial security and to get on the path to financial prosperity, you’ll need to embrace temporary discomfort. It’s temporary because it won’t last forever. Once you’ve completed these steps, you’ll be a new person with new habits, beliefs and a new outlook on your future.
It will get easier. Your life will be better.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
We’ve got three free courses as well: Our Goals Course, Values Course, and our Get Out of Debt course.
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