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According to data, 67% of people aren’t financially literate and 60% don’t have an emergency fund or a savings account globally. Are you included in these statistics?
That’s why reinventing your finances and building wealth is important so you won’t have to be in these statistics. In this article, I’ll share with you 10 steps to improve your finance, build a strong financial foundation, and tips to help you along the way.
Whether you’re a beginner or an expert at finances, you can take away something from this article. So, continue reading, get comfortable, and grab a pen and notepad to take notes!
The Benefits of Building a Solid Financial Foundation
- Build Generational Wealth: Have money to live on for the rest of your life, and leave money for your children and grandchildren. In addition, you will provide opportunities for your children that you’ve never had.
- Become Financially Confident: Knowing you have money, especially when hard times come, will make you feel financially secure.
- Retire Peacefully: You won’t have to work for the rest of your life if you have a solid financial foundation.
- Withstand Tough Times: For instance, if you get laid off or another recession hit, you would be financially secured because you have built a solid financial foundation.
10 Steps to Improve Your Finance: Build Generational Wealth and a Strong Financial Foundation
Step 1: Assess Your Current Financial Situation
To reinvent your finances you must first reflect on your current financial situation. Are you doing well or struggling financially? What is your net worth (your debts minus your assets)? Are you financially on the right path? In this step, you should be completely honest with yourself.
Step 2: Set SMART Financial Goals
After you have a clear understanding of your financial situation, set SMART(specific, measurable, achievable, relevant, and time-bound) goals to achieve. It is crucial to have goals that way you’ll know which direction to go.
To set SMART financial goals, jot down where you want to be financially and the steps you need to take to get there. For example, if your goal is to save $5,000 this year to buy a new car then you know that you need to save $417 a month.
In addition, track your progress regularly and check if your financial habits align with your goals.
Also, remember that the clearer and more specific your goals are, the more you are most likely to achieve them.
Step 3: Create a Budget That Works for You
The best way to generate wealth is through budgeting. Budgeting is about prioritization and not deprivation. Therefore, use a budgeting strategy that works for you.
Apps such as Mint and YNAB are great to help you budget. Also, you can use the envelope method where you categorize your income into envelopes such as needs, wants, savings, and debt payments.
Moreover, try out different budgeting methods and stick to one that works for you.
Step 4: Track Your Spending Habits
Keeping an eye on your spending habits is a game changer when it comes to reinventing your finances. That’s why you should consider using a spreadsheet to track your daily, weekly, and monthly spending habits.
A financial spreadsheet makes it ten times easier to stay on top of your spending habits by tracking your expenses and seeing what your money is going towards.
So, take a moment daily, weekly, and monthly to view your spreadsheet.
Step 5: Eliminate Unnecessary Expenses
Did you know that the average person spends up to $12,000 per year on unnecessary items? Yes, you’ve heard right $12,000!
To improve your finance you must eliminate unnecessary expenses and you can do this by simply stop buying things you don’t need.
Also, cancel useless subscriptions and memberships that you don’t use or need.
In addition, use cashback apps and coupons to save money on expenses. A great place to start is Rakuten. Rakuten is a website where if you sign up, you can get cash back while shopping your favorite brands such as Target, Sephora, Walmart and much more.
By not purchasing things that are of no use to you, you’ll be able to afford things that are meaningful to you like going on a trip.
Step 6: Build an Emergency Fund
Be prepared for the unexpected by creating an emergency fund. Having an emergency fund that covers up to 3-6 months of living expenses will help you to be prepared for the many curved balls life throws at you.
A great rule of thumb is to place your emergency funds into an automatic transfer high-yield savings account.
However, this emergency fund is only to be used when there is a real emergency such as for a medical bill or car repairs.
Step 7: Pay Off High-Interest Debt
Paying off debts can alleviate a lot of financial stress. Therefore, consider paying off your debts as quickly as possible.
You can pay off your debts by using the debt snowball method where you pay off the smallest debt first or the debt avalanche method where you pay off the highest interest debt first.
Also, consider consolidating or refinancing to lower interest rates that’ll help you pay off your debts in no time.
Step 8: Start Investing Early and Wisely
Investing has to do with compounding and compounding takes time, so the sooner you invest the better. Hence, some of the world’s greatest investors such as Warren Buffet started when he was as young as eleven years old!
If you’re thinking about investing, a great place to start is Index Funds or Exchange-Traded Funds (ETFs). They are the most diverse, less riskier, and accessible stocks to invest in. Therefore, invest a fixed amount of your income.
Also, begin a retirement account such as a 401(K) or an IRA for a stress-free retirement.
Luckily, you don’t have to know everything about investing. Consider getting in touch with a financial advisor to set up your investment portfolio based on your financial goals and place you on the right path for building wealth.
Remember investments compound over time, so now is the time to start.
Step 9: Build a Few Passive Income Streams
The best way to generate wealth without trading your time is by building passive income streams. Passive income is making money while doing little to no work.
Some great passive income streams to get started are dividend stocks, rental properties, and creating digital products and courses. See which ones work for you and scale gradually.
In addition, having passive income streams is a great way to make sure you’re financially secure when one of life’s unexpected turns occurs such as getting laid off.
Step 10: Monitor and Adjust Your Financial Plan
Reinventing your finances requires you to monitor your financial plan regularly. Check your spending habits, expenses, and cash flow: Are you spending more than you save?
Be honest with yourself and make the adjustments as needed.
For example, if you’ve bought a home or changed jobs, you must be willing to adapt to new changes.
Remember to reassess your financial goals and budget every six months to ensure that you’re on the right path to a firm financial foundation.
Tips on Improving Your Finance
- Educate yourself on money: To improve your finance you must first learn about money. You won’t succeed at something if you don’t have the knowledge to do so. A great place to start is reading Rich Dad, Poor Dad by Robert Kiyosaki. This book was one of the first books I’ve read on money and has helped to improve my finances tremendously.
- Be Grateful: Being grateful for what you already have will cause you to avoid impulsive spending. In a world where consumerism is at its all-time high, we tend to buy things we don’t need for the fear of missing out.
- Build a support system: Connect with like-minded people like you who want to better their finances. When we surround ourselves with like-minded people, we can learn from them and become motivated. Also, follow Money Grugrus online. Following these people will give you a sense of hope and inspire you to keep going. Therefore, follow at least three people who you can relate to and connect with while on your journey.
- Try the 50/30/20 rule: It is a budgeting rule where you put a percentage of your income into categories such as 20 percent into savings, 50 percent into necessities, and 30 percent into your wants. This order isn’t set in stone you can change the percentage or categories to align with your budgeting needs.
- Try money challenges: A fun and motivating way to reinvent your finance is by challenging yourself. It pushes you to want to improve your finance. For example you can set a goal to save $500 this month by cutting down on buying things that you don’t need.
To Wrap Things Up
Reinventing your finances won’t happen overnight but I guarantee if you follow these ten steps and stay consistent, you will see a change in your finances over time.
These steps are the blueprint for you to improve your finance, generate wealth, and build a solid financial foundation. So, let’s take the first step together today!
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