You’re ready to get your finances in order, but where do you start?
I am asked this question on a weekly basis and I completely understand.
In a previous Twitter chat I stated, “Looking at your credit report for the first time is like walking into a room and all of your bad financial decisions are hanging out.” It can be absolutely overwhelming. It’s especially overwhelming if you are essentially starting from scratch.
There are many different plans of action one can take, which I think are relative to your situation. While retirement is extremely important; establishing good financial habits and a budget are even more important.
Step 1: The first step I recommend is securing employment or establishing a regular form of income. To accomplish your financial goals you will need…finances. Being underemployed is different from unemployed and can be an issue on its own but the important thing is to become employed so that you can take care of your necessities (rent, food, transportation, childcare, etc.).
Step 2: Establish a budget. I highly recommend my friendtor’s (Friend + Mentor) Tiffany “The Budgetnista” Aliche’ book, The One Week Budget which can be purchased on Kindle for less than $1 here . I highly recommend this book and often refer to it myself.
Familiarize yourself with your credit report. Identify any debts owed and the amounts. This will be key in determining a “get out of debt plan”. Be patient. Remind yourself that getting out of debt often takes longer than it did to get into debt. It is possible. Try a site like Quizzle or my credit report tutorial to gain access to your credit report.
Step 3: Designate an amount you can afford, to build your emergency fund. When I say what you can afford, that doesn’t mean only putting aside $25 a month because you have $100 on the side for your fun fund.
Establishing an emergency fund is essential. I recall after graduating from college I was laid off from 2 jobs. One went bankrupt and the other one reorganized after coming out of bankruptcy. Job security is not what it was for our parents and grandparents. It is important for you to prepare for whatever may happen. The amount you put aside each month should take into account how much of your current income you will need to pay off your debts. For example, currently I put aside roughly $300 per month and hope to boost that to $500 per month by next year.
While you should be concerned with investing – unless your job has a matching program, which would essentially mean free money – focus on getting your savings together and your debt down. During this process, I learned emergency funds are used before retirement account funds.
Once you grasp the basics, begin exploring your investment and retirement options.
Also remember, there are more people experiencing financial difficulty than those that do not. I know a lot more financial messes than successes. Find a finance buddy and hold each other accountable. It’s so much easier when you are working with someone else to accomplish your financial goals.