10 Steps to Financial Success
You don't have to make a fortune to create one. With smart financial planning and investing you can save a modest amount month after month, and end up with enough money to retire comfortably in 30 years or less. Here are the 10 steps to financial success:
*Download our free Financial Planning Worksheet to help you follow the 10 steps.
1. Don't spend money you don't have.
The number one mistake people make is spending money they don't have. If you're borrowing money you're going to have to pay interest on it. Not only does that interest take more of your hard earned money, but it's money you've earned that you're unable to invest for your future. Would you prefer to pay interest to your credit card company, or have it multiply for your retirement? You can still buy things you need, but wait until you have the money rather than putting it on a credit card or getting a loan. Home mortgages and business investments can be exceptions to this rule as these are appreciating assets, growing in value over time.
2. Get insurance to prevent financial collapse due to medical emergencies or disasters.
Bad stuff happens. Medical emergencies and natural disasters can lead to absolute financial collapse. Get quality health, auto, and home insurance to prevent catastrophic losses should you find yourself in such an emergency. If you can't afford quality insurance, you should consider renting rather than buying and using alternative means of transport.
3. Create an emergency fund.
Save enough money to pay all your bills for 6 months, and keep that money available as cash in the bank. If you lose your job or find yourself with a large unforeseen expense you don't want to go into debt or withdraw money from your investments. Some people may feel comfortable with a 3 month emergency fund and others with 3 years, depending on your work and family situation.
4. Maximize your earnings.
This is a big one, and something you have more control of than you may think. Put 110% into everything you do, and always be on the lookout for opportunities that will increase your income. Everyone can move up the financial ladder, even if you're starting at the bottom rung. A dish washer at McDonald's with little education can move up to grilling burgers, cashier, store manager, and more. Don't sell yourself short!
5. If you have bad debt, pay it off as quickly as possible.
Bad debt is the cause of most financial problems. The astronomical interest rates charged by credit card companies, payday loans, and the like will keep you a debt slave forever if you allow them to. If you have bad debt, pay it off as quickly as possible. You may need to consolidate your debts into a single lower interest loan or use an accelerated payoff method. Be very careful not to get taken advantage of by so called debt management companies. See our section on debt management for more information.
6. Only use credit cards if you can pay them off at the end of each month.
Credit card debt is some of the worst kind due to the incredibly high interest rates and fees. Do not buy anything on your credit card if you're not going to pay it off in the same month, period. If you already have credit card debt, paying it off as quickly as possible should be your top priority. See our section on credit cards for more information.
7. Create goals and a financial plan to achieve them.
This is a simple but important step that most people neglect. You need to know what you want in order to get it. Think about where you want to be in the future and what it will take to get there, and make a financial plan. Write it down on paper, and stick to it.
8. Save a set percentage of every paycheck for investing.
Part of planning to achieve your financial goals will involve saving money. Plan on putting a set percentage of every check into savings, and never deviate from the plan. A small amount of money can become a serious fortune over time, but the key is to start early and save as much as you can. If your income increases you should strongly consider increasing the percentage of money you save from each paycheck.
9. Invest in a diverse portfolio for the long term, and minimize fees.
The key to smart investing is diversity and a long term outlook. To minimize your risks and maximize your gains, you should invest in a diverse portfolio including stocks, commodities, real estate, emerging markets, and CDs. You don't want all your eggs in one basket. You also shouldn't attempt to time the market. Invest wisely and start early. See our section on investing for much more information.
10. Enjoy yourself.
While money will provide safety and security, and you definitely need a minimum amount to be happy, money itself doesn't make you happy. When you create your financial goals remember that you only live once. You never know when your time is up, so enjoy yourself while you know you can!