What Should I Do First to Improve my Finances?

How do I improve my finances? 3 steps to success.

When you’re thinking, “How can I improve my finances?” You probably don’t know where to begin. That’s not your fault, though! Most people aren’t taught how to handle money, and worse yet, many people are taught that money is bad and shouldn’t be talked about. It’s time to take a clear and honest look at your finances, without any shame, and start figuring out how to improve them. First, let’s talk a little about why you shouldn’t feel bad about talking about money. Then, let’s see what the first step should be to hit your financial goals. Ready?

If I Want to Improve My Finances, I Can’t Think Money is Evil

There is a common misconception, especially in the Christian world, that money is bad or evil. That assumption started with a bad interpretation of the Bible (actually, a complete lie about what the Bible says) and slowly bled out from the church into general society long ago. What lie am I talking about? “Money is the root of all evil.” Wrong! The Bible says: “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.” 1 Timothy 6:10, my emphasis added.

You probably have never heard that full verse said, have you? People like to manipulate scripture to fit their own ideas. Often, people don’t even realize they’re saying something the Bible doesn’t say; they’re just repeating what they’ve heard.

It’s a Christian Idea, But It’s For Anyone and Everyone

Whether you’re a Christian or not, though, you need to rid yourself of this idea that money is bad. (At least you probably see the Bible as a source of wisdom if you’re not a Christian; and it is.) Why would you want to do a better job handling money if it’s evil? Or why would you want more of it?

Instead, you should think, “I want to improve my finances because money is a tool from God that I choose to use for good.” That’s all money is – a tool. Just like a hammer, it can be used for good or evil. You have to decide which it will be.

If you try to handle your finances better, but deep down believe money is bad, then your mind will never be at rest as you internally despise the actions you are taking. Don’t do that to yourself! Just change your beliefs about money based on a clear assessment of what money truly is.

Now I See That Money is Not Bad. How Do I Now Improve My Finances?

There is a basic system that, if you follow, will improve your financial life drastically. I advocate following Dave Ramsey’s 7 Baby Steps to improve your financial life. These steps go through a few basic phases, which I will explain here. (Side note: If you think Dave Ramsey doesn’t know how to manage money, consider his $600 million of personal real estate acquired without ever going into debt; or that his program still produces millionaires in, on average, 10 years- from debt to $1 million net worth). Let’s break down the basic phases of this program needed to improve your finances.

How do I improve my finances? 3 steps to success.
How to improve my finances? Follow the simple and proven ways to do it.

Phase 1: Get Out of Debt, Except for Your House

The most important thing when it comes to improving your financial life is to get out of debt. Yes, the most important. Debt is such a normal thing now that people have stopped noticing how much it takes from them. What most people spend on their car would be literally millions of dollars if they simply invested it in the S&P 500 (this is the measure of the US economy) for their adult life. A car is actually keeping you from retiring. Sounds crazy, I know, but it’s true! You have to understand the power of compounding. Try out this calculator and see for yourself what the average car payment ($726/month!) could turn into if invested.

Debt is robbing you of your future! It doesn’t seem like a big deal to not pay off that credit card in full this month or get a car that’s just an extra $100/month, and for one month, you’d be right. That’s the tricky thing about debt. It’s never just a one-time thing. New car payments are now going typically for 7 years! That’s a long time. One month might not be a big deal, but stacking one small thing on another for years adds up to quite a lot. That’s why the first thing you should do when improving your finances is avoid debt.

First, get $1,000 in a savings account for emergencies. This will keep you from using a credit card for small and mid-sized unexpected expenses. It won’t protect you from everything, but it will help with a lot of things. Pay minimums on your other debts while you get this fund in place. Once you have $1,000 in your account, use the debt snowball method to wipe out your all your debt except your house.

Phase 2: Build an Emergency Fund

Now that you don’t have debt weighing you down, and no interest accruing on those accounts, it’s time to put in place a full emergency fund. This is simple to figure out: What is the minimum you would need to survive on for 3-6 months? You should have a good idea of this number by the time you get here, because you’ve been budgeting and living on less to attack that debt. Now, with the same intensity, get that money in a savings account. Pick however many months you feel comfortable with.

If investing is so powerful, why am I putting this much money in a savings account? That’s a good question. We want this emergency fund to be available 24/7. If you unexpectedly lose your job, you don’t want to be waiting to pay the bills until you can pull money out of our investments. Plus, if it’s in a retirement account, you don’t want to suffer the early withdrawal fees. The emergency fund needs to be easy to access so you can actually use it if you need it.

Can you imagine how peaceful you would feel with no debt and a 3-6 month cushion between you and disaster? That can be your reality. If you want help getting there, consider hiring a financial coach. I got certified by Ramsey and can help you figure out all the details involved in walking those baby steps. The steps are great, but there’s a lot of stuff in life that a blog doesn’t have space for.

Phase 3: Start Building Your Future

The last phase focuses on making a better future for you and your family. Here, you will pay off your house early, start investing for retirement, begin saving for your kids’ college, and generally start building wealth. This is where you get to start really enjoying life. You don’t have the weight of debt, you have a great emergency fund in place, you can start getting better insurance for more peace of mind, and generosity is now much easier for you. Giving is the most fun you can have with money.

I don’t suggest waiting until this point to be a giver, but I do suggest you increase your giving when you get here. If you’re not a giver when you’re small, you won’t be when you’re big, either. Money amplifies your character, it doesn’t change it. You just have a greater capacity to be yourself than you did when you were broke. That’s also why you start to budget when you’re broke: change your character when you’re small, and it’ll appear in more force when you’re big.

Now You Know

You asked, “How can I improve my finances?” And I answered. The debt snowball and Ramsey’s Baby Steps are literally the two most proven ways to get out of debt and then build wealth, respectively. Which part you start with depends on where you are now. As a financial coach, my obligation is to give you information that is backed by data, and I strive to meet that obligation with excellence. Keep on reading the Personal Finance section of the Living in Focus blog for more information on “how to improve my finances,” and don’t forget to see the other sections that help with the rest of your life!

Financial coaching expert Cameron

Ready to start working toward your goals with a financial coach? Get the accountability and support you need to get where you want to be. Get a free consultation today, or buy a session now!

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