According to a Policy Genius survey, 64% of Americans feel anxious about their financial picture. While inflation and career concerns both play a role, more often than not these feelings arise from not having a solid financial foundation in place!
Too often, people experience financial anxiety by living beyond their means and spending more than they earn as well. Over time, this leads to debt and creates additional pressure to pay bills on time!
If that wasn’t bad enough, many people feel anxious when it seems like they’re falling behind and are unable to keep up with the Joneses. To catch up, they make poor decisions, like overextending themselves and buying status symbols. While it may appear that they’re gaining ground, in reality, they’re falling even further behind!
If you’re going to experience less stress over money, then you need to build a solid financial foundation. With it, your worries will ease and you’ll feel more at peace!
Unfortunately, personal finance isn’t taught in school. Because of this, many people don’t learn about money and the way it works until they’re forced to. They may experience a job loss, find themselves deep in debt, or are so tired of struggling to make ends meet that they’re desperate for a change!
Like footers in a home, a financial foundation gives you a strong base to build from. As its infrastructure takes shape, both you and your finances will elevate to a higher level!
The process of creating a strong financial foundation also allows you to build better habits with money. It instills living below your means and practicing financial discipline to limit your spending. As a result, you’ll produce savings and can start building the life of your dreams!
By building a solid financial foundation now, you’ll be prepared to get through hardships later. You’ll have the means to navigate them, limiting their harmful effects in the process. As a result, you won’t just be in a position to survive, but one where you can thrive!
Here are 5 steps that will help you build a solid financial foundation and have greater success with money!
Before you can get better with money, you first need to understand your situation. From there, you can identify the areas you need and want to improve!
To organize your finances, start by taking a financial assessment or filling out a personal financial statement. Either one will help arrange your finances into assets and liabilities.
Assets are items of value, like your retirement nest egg, bank accounts, or equity investments. However, liabilities are your debts and loans, such as a mortgage or vehicle loan.
After separating your assets and liabilities, total each list. Then, take your assets and subtract your liabilities. The result is your net worth which gives a good indication of your current financial health. A positive net worth shows you’ve created some level of wealth whereas a negative one indicates that you may be drowning in debt!
Upon discovering your net worth, it’s time to review your earnings. Begin by listing all your types of income and the amounts you receive. Then on a separate list, write down all your monthly expenses and their corresponding amounts. If this is difficult, try reviewing your previous bank and credit card statements to get a feel for your spending habits.
After listing your income and expenses, total each one. Then, take your income and subtract your expenses to get your monthly cash flow. If it’s positive, then you’re saving money each month and have the means to build a solid financial foundation!
But, if your cash flow is negative, then you’re living beyond your means. Not only is your current lifestyle unsustainable, but you’re taking on additional debt to support it. If this continues, you’ll find yourself in the middle of a full-blown personal financial crisis!
When you want to drive someplace new, you get directions. Following them allows you to start at Point A and safely arrive at Point B.
In personal finance, a budget is directions for your money. It’s a set of instructions that takes you from the place you are now, to the place you’d like to be!
Oftentimes, budgets get a rap rap, since they can be viewed as limiting and restrictive, when in fact the opposite is true. They help you get more of the things that are meaningful and important to you. Not to mention, they create a plan to save each month, too!
When you create a budget, you’re finding the means to build a stronger financial foundation. It lays the framework for how you’re going to save. With it, you’ll have the resources you need to start working towards your financial goals!
Depending on your situation, you may need to establish a rainy day fund, pay down debt, or build a cash runway. No matter what it is, budgeting establishes a plan that makes it all possible!
In a perfect world, you’d be able to follow your spending plan and stay on budget with little effort. But in reality, surprises and unexpected expenses can shatter the best plans with ease!
When it comes to financial emergencies, you never know when they’re going to strike or how severe they’ll be. They show up unannounced, leaving you with large unforeseen bills to pay!
To create a solid financial foundation, you have to protect yourself from sudden events. Otherwise, they’ll likely wreak financial havoc!
Two easy ways to protect yourself include having adequate insurance and building an emergency fund. Insurance is important because it limits the amount of money you have to pay out of pocket. Without it, your bills and losses have the potential to be endless!
Too often, inadequate insurance leads to financial ruin. So much so, that 65% of all bankruptcies arise from having inadequate health insurance.
Having an emergency fund is another important part of your financial foundation. With it, you have an allotment of money that you hold liquid and available. This way, when financial problems, like car repairs or urgent medical treatment arise, you can solve them with ease. Otherwise, you may have to delay them. Not only can this make them grow worse, but become more expensive, too!
From the start, some money personalities are going to set loft goals that require them to follow a razor-thin budget. But, they’re only going to be able to skimp and be extra frugal with money for so long before they burn out, break, and reverse months of progress!
Deprivation is one of the main reasons that people struggle to come in under budget and save. They’ve cut out or eliminated the types of expenses that are meaningful and important which leaves them feeling down.
When you feel this way, the last thing you want to do is budget. It’d be easier to give it up and quit altogether, instead!
As you build a strong financial foundation, you’ll discover that you need to make some adjustments. You may find that you didn’t plan to spend enough fun money. Or that you keep overspending on some budget categories while coming up short in others. However, if you were to restructure your spending, you’d likely save without any trouble at all!
In fact, I encourage you to experiment with all the places and amounts where you spend money. How else are you going to figure out what you like most and what will work best unless you try?
Too often, I talk to people who yearn to have a financial transformation, yet never do. While building a strong financial foundation sounds good in theory, they never take the first step!
If you don’t start, how do you expect your financial situation to change? In most cases, it won’t and in the others, it will turn even worse!
Don’t delay, start today. Take one small step right now. It can be as simple as automating your finances, opening a savings account, or cutting one recurring cost.
Don’t think about it, just do it now. While the first step may be the hardest, it’s the one that gives you momentum and allows you to build!
Unfortunately, financial success doesn’t happen overnight and it doesn’t hinge on getting every decision right. But with a solid financial foundation and good habits, it’s only a matter of time before your dreams are in sight!
How are you building a solid financial foundation? Comment below.
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