I think it’s safe to say that most people crave to have a stable financial foundation but don’t feel satisfied with their current status. Recent surveys from lending institutions found that less than 35% of respondents feel their personal finances are strong. This tells me there’s a lot of people out there that need some guidance. Hopefully after you read this blog you will feel more emboldened and ready to commence with building your financial foundation.
What is a Financial Foundation?
Building this type of foundation is a lengthy process. Your goal should be to build a solid foundation that will take care of your current financial responsibilities while supporting your future financial goals. This means you have to be smart with your short-term purchases and think long-term.
If you want to help boost your financial confidence now and in the future follow these steps to get your started:
1) GET ORGANIZED
Before you get started, make sure you know your current financial condition. This process will help you get a current view into your financial health.
Start by creating a personal balance sheet. This is simply a summary of your assets (what you own) and liabilities (what you owe). Your assets may include items like bank account balances, investments, your home, jewelry, etc. Your liabilities are your debts like your mortgage, vehicle loans, student loans, credit card debt and more. List each asset and liability you have, and this is your personal balance sheet – simple. Once you have all your figures you will have a sense of your net worth by adding up all your assets and subtracting your liabilities.
Next, take a look at your monthly cash flow. This is every source of income you have and the expenses you have on a regular basis. A budgeting form like this one from the FTCcan help make this process much easier.
And finally, check your credit score. You are entitled by law to a free copy of your credit report from each major credit bureau.
2) PROTECT YOURSELF
Now that you know where you stand financially, it’s important you put a plan into place to keep your financially safe while you build your financial foundation.
o Build an emergency fund: If you don’t already have one, it’s essential you build one. An emergency fund is essential to keep you financially buoyant, vs. dipping into debt when faced with unexpected costs like healthcare costs or loss of a job.
o Insurance: Do you have adequate insurance that can limit your out-of-pocket expenses when unexpected things occur like medical costs, car accidents, etc.?
o Estate Plan: Make sure to create or update your estate plan (trust or will). This will provide a direction to your family or loved ones what you want done with what you leave behind upon your death.
3) PRIORITIZE YOUR DEBT REDUCTION
Maintaining some debt can be beneficial but be aware that over-extending yourself due to interest payments can be a deterrent to your long-term financial goals. So, focusing on debt repayment can be a great way to free up cash and build your financial foundation. You may want to consider implementing an enhanced debt repayment strategy or even knock down your interest rates by consolidating your loans or credit card debt.
4) OUTLINE YOUR FINANCIAL GOALS
Now is the time to spell out exactly what financial goals you have for both the short-term and the future. Write them down and make your goals SMART: Specific, Measurable, Achievable, Realistic, and Time-bound. Below are a few ideas:
o Build an emergency fund
o Pay off high-interest credit card debt
o Save for a down payment on a home or condo
o Review and improve your credit score
o Learn how to invest wisely
o Set up a vacation fund to avoid putting it on your credit card
o Research a secondary stream of income
o Retire by age 65
5) LET’S MAKE IT HAPPEN
As soon as you have your balance sheet and goals completed, it’s time to put it into action. Since your goals need to be achievable and realistic, don’t try to accomplish them all at once. Step 1 might be as simple as opening a bank account to start your emergency fund or opening a retirement account or making contact with a lawyer to start your estate plan.
· Have discipline: Stick to the plan
· Budget: You can’t be financially healthy if you spend more than you earn.
· Automate: Set up recurring money transfers from your checking to savings or automate your bill payments
Building your financial foundation will take focus and effort. If you follow the process outlined above or your own, you’ll see results and hopefully gain confidence in your ability to create and maintain a financially healthy life.
Helping you build a solid, successful financial foundation is of paramount importance to all of us at allU.S. Credit Union, and it begins now. Joining us is your first step. Working and growing together, you’ll see that your financial success will be in your hands.