Manage Your Finances

The Surprising First Steps to Improve Your Finances

Steps to Improve Your Finances

Do you ever feel like you’re doing the Financial Two-Step?  Two steps forward, two steps back.

You’re able to get by each month, but unable to get ahead.  If so, you’re on the proverbial financial treadmill: running, but going nowhere.  And you’re not alone.  Nearly one-half of all Americans are living paycheck-to-paycheck, just one misstep or unexpected expense away from financial disaster.

So how do you get off that treadmill and begin to take control of your finances?  There are so many things you can do to start to improve your situation, but what’s the right first step?

Steps to Improve Your Finances

With so many available options, how can you know where to get started?

  • Should you pay off your debt first or start saving money first?
  • Which debt should you pay off first?
  • Do you focus on the highest interest debt or the lowest balance debt?
  • Exactly how much money should you save?
  • Should you leave your savings in the bank or invest it?
  • What should you invest in?  Stocks? Real estate? Something else?
  • How much do you need to save for retirement?
  • How long will your money last?

It would be great if there were a step-by-step approach to financial independence, but that’s not the case. Every situation is uniquely different, therefore you’ll need to customize your strategy to fit your needs.

There are myriad of questions that nobody can answer but you. Making things more difficult is that the financial world is full of contradictory opinions telling you what you should focus on.

Personal Finance is Personal

Whether you’re someone that’s just learning to manage your finances or if you’ve been at it for years, one thing is certain: nothing is certain.

Tune into a business news channel today and you’ll hear a financial expert warning everyone that the stock market is poised for big crash.  Change the channel and another expert will explain why the stock market is poised to go on an historic run.

Some people will tell you that the 4% Rule is a golden rule for your golden years while others will tell you it’s a surefire way to run out of money during retirement.

Contradictions abound because nobody has a crystal ball, but everybody has an opinion.  This leads to confusion and it can all be paralyzing if you’re unsure about what you should be doing with your money.

One Size Fits One

At least we’ve got the universally agreed upon fact that you should have an emergency fund of $1,000 to fall back on. That’ll be a good place to start, right?

Yeah, that’s not so universally agreed upon either.  Some believe that $1,000 isn’t nearly enough, that you need enough money to cover your expenses anywhere from one to twelve months.  Some will even tell you that an emergency fund isn’t necessary at all and is in fact a poor use of your money.

One reason there are so many differing opinions is that there are an equal number of unique situations.  Personal finance is personal after all and what works for me might work for you too, but it might not.  If you’re looking for a perfect solution then you’ll be looking for quite a while.

According to a report by the Pew Charitable Trusts, 80% of American households are in debt.  Digging deeper into that number reveals that 89% of Gen Xers and 86% of millennials are carrying some level of debt (credit cards, student loans, auto loans, mortgages, etc.).

Clearly many of us need some money management help, but with so much conflicting information out there, what’s a regular John and Jane Dough supposed to do?

Evolve.  That’s what you’re supposed to do.

The Exact First Step Isn’t Important

When you’re just starting out on your personal finance journey then any reason to get started is a good reason, until you find a better one.  That statement should offer you some degree of comfort if you don’t know where to start to get you finances in order.  Essentially what I’m telling you is that your first step doesn’t really matter.

That’s why, in my opinion, the best thing you can do is anything.  It doesn’t matter what you do to start improving your financial situation, what’s important is that do something to improve your financial situation.  You can always evolve your strategy later.

So that’s my advice: do something.  Every good thing you do has a compounding effect that will help you pick up steam as you go.

Ready. Fire! Aim.

It doesn’t matter what you do, just get started. Pick whatever feels right to you.

If you’d rather start by paying down your debt – great. That’s a perfect place to start.  If you feel like your best first step is to start eliminating unnecessary expenses – perfect!  Another excellent choice.  Any reason is a good reason, until you find a better one.

Your financial goals can, should, and will change over time – it’s called a financial evolution.

Problems With The 4% Rule?

Let’s take another look at The 4% Rule. It’s very controversial and you’ll find experts and non-experts passionately arguing the pros and cons of it. Personally, I like it, but for non-financial reasons that I don’t see talked about very much.

The 4% Rule (sometimes called the Safe Withdrawal Rate) basically states that you can determine your annual expenses and save 25 times that amount. Once you’ve saved that amount you can safely withdraw 4% per year to live on throughout your retirement.

I like the 4% Rule not because it’s financially bulletproof, but because it provides a big, clear, and understandable target. When many people are intimidated by personal finances and have so many questions that need to be answered like ‘how much should I invest?‘ and ‘how much do I need in order to to retire one day,’ the 4% Rule is a bright shining beacon in the darkness.

Something to Aim For

To the financial newbie that doesn’t know what else to do, that’s a HUGE relief.  Suddenly you now have a target to aim for and a strategy for how to hit that target and that beats the hell out of wandering around without a clue.

That’s why I love the 4% Rule and that’s why I am following it today. If tomorrow I decide that I no longer think it’s such a great rule for me after all, then guess what? I’ll evolve and change my strategy, but I’ll do so with a pile of assets to my name.  Had I waited for a “perfect” solution then I wouldn’t be in as good a situation as I am today.

The secret of getting ahead is getting started. – Mark Twain

Another example is Dave Ramsey’s Debt Snowball. Mr. Ramsey is about as controversial as the 4% Rule is. Personally, I think the Debt Snowball is amazing because it’s another very clear and easy to understand jumping off point. For someone that doesn’t know where else to start, the Debt Snowball is a road map with very clear directions:  Identify all of your debts and pay off the one with the smallest balance first; ignore interest rates. Once that first debt is paid off, use the money you were paying towards that debt and apply it to you next lowest debt balance. Repeat till you’re debt free.

Great advice … for some. If you start down this path then decide eight months later that you’re going to focus on paying off your debts based on interest rates, not loan balance, good for you! You’ve experienced financial evolution.

How To Manage Your Personal Finances

Still not sure where to start?  Here’s my suggestions for you:

1. Spend less money than you earn

Start by eliminating unnecessary expenses from your budget.  Then find other areas in your life where you can save.  Need some ideas?  Here are another 83 unusual ways to save money. Pick a few of these ideas and start hacking away until you are spending less money each month than you make.

2. Invest the difference

Once you start spending less than you earn you’ll have a surplus of money. Put that money to work by investing it. Buy index funds, not individual stocks. If a year from now you decided that you no longer like the stock market and that you’d rather invest in real estate instead, great!  You’ve experienced another financial evolution and can make a better decision for yourself at that time.

3. Eliminate, then avoid debt

Debt is the great wealth killer. Debt is an anchor on your future that robs you of your freedom.  If you’re in debt today, do everything you can to get out of debt as fast as you possibly can.  Once you’re out of debt, avoid it from that point forward.

And that’s it.  If you don’t know what else to do, this is my advice and it’s fantastic advice, if I do say so myself!  It’s a great starting point that gives you very clear goals to set for yourself.

When you’re just starting out, what you do isn’t nearly as important as getting started.  So get started and if at some point in the future you decide that your goals need to shift, then shift your goals. Evolve your finances, continually refine your strategy, and reach financial independence.

Looking for steps to improve your finances? The first step doesn't matter. What's important is that you get started.

Chime in!

Do you believe in financial evolution?  What about my ‘Ready. Fire! Aim.’ advice?  What’s your best financial advice?  What would you tell someone that doesn’t know where to start?  Please leave a comment and let me know!

By Ty Roberts

Ty Roberts is the founder of Camp FIRE Finance, and a husband and father of four living in the Seattle area. He's a fan of the 4% rule, 80s movies and music, dad jokes and cast iron cooking.

18 replies on “The Surprising First Steps to Improve Your Finances”

Fantastic post, Ty! Getting started is the most important thing you can do! I love the ‘Ready Fire Aim” approach, actually. That’s how I operate – and it works for me. If I don’t just start, I’ll read and research and plan and question myself and never get anywhere at all. My plans, strategies and goals shift as time goes on, but that’s only natural.

My best financial advice? Figure out what you want out of life and work backwards from there to create a strategy. Money is almost always a part of the plan. It’s hard to find your way if you don’t even know where you want to go.

Great suggestions. I don’t think it makes a huge difference which first step you take either. As long as you’re committed to improving your finance, you’ll be better off in time. Personally, I prefer paying off high interest debt first. 🙂

Thanks, Joe! I don’t think it matters either, but I’ve heard people say they’re afraid of making the wrong move and screwing things up. This post was mainly for those people, but it’s a good reminder for everyone else as well. Thanks for commenting – I hope your 2017 is off to a great start!

DO SOMETHING! Perfectly boiled down to the point. Don’t get caught up in the details. Start saving – anything, anywhere. From there you can educate yourself. If debt is an issue, read about getting out of it. Once you’re out, read about investing. Many people who are successful isn’t because they did it all on their own – they learned from others and figured out how to apply what they learned to their own strategy for improvement. Such great lessons here!! 🙂

Love your approach – and my best advice would be to start YOUNG! Do something – and do it often! Your Ready Fire Aim almost requires flexibility or financial evolution – which is a good thing. As we change and get older, our approach and goals change too.

I love this post! It’s so easy to get paralysed by indecision, and before you know it months have passed and you’re no further forward. Also very easy to complicate things, simple is definitely best. Thanks!

Great post! I love the “do something” approach and advice to remain flexible. However, if I had to pick one approach above all others, I agree with your #1, spend less than you earn. It’s the mother of all habits because if you can conquer this one, everything else will fall into place. And if you don’t conquer it and start with one of the others, such as eliminate debt, you might find yourself back in debt pretty quickly if you haven’t modified your spending habits.

Great advice, Ty. We’ve toyed around with SO many different suggestions about how to tackle our money problems. What we finally decided on (and it’s working, after many other trieds and fails) is doing the debt snowball and simultaneously saving a small percentage of our income. Customization really is key to financial success. Keep working at different plans until you find what’s right for you.

Thanks, Laurie! Good and bad news: there’s not a single path to wealth.

Bad news because how nice would it be to have that recipe in front of you!

Good news because there are so MANY paths you can follow! It’s really just a choose your own adventure book. Stick to it and eventually you’ll reach your goals.

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