I try to keep my advice simple and concise. I do like to talk about all aspects regarding personal finances but there are a few things that I harp on. These are what I call my foundational steps. These are the things that if you get them down you have just figured out what most of America has not, how to not be a slave to your money. (it just takes a plan)
Most of Americans have all their monthly income come in, then all of it goes right back out (most of the time they do not even know where it went).
Foundational Step #1 – Giving
Make the decision to start giving money away. A good starting point is 10% of all income. The reason why I say it is a good starting point because if you are a Christ Follower, old testament law tells you to give a tithe which is a tenth of all your increase.
My advise always starts here; for a few reasons. First, I am a Christ Follower and I believe that when God asks for first fruits (we give first) he is not asking because He needs money it is a heart issue. So by giving my money first it is another way I can put God first in my life. Second, it psychologically, mentally, and emotionally takes you out of the “me-istic” mindset the we all have in America. When we give first we literally need/want less.
Foundational Step #2 – Plan for Basic Needs
Write on a sheet of paper these 5 categories in this order:
Food
Housing
Utilities (power, water, etc…not cable)
Transportation
Clothing
I want you to put a number next to each of these categories. Your income goes to these FIRST. If your income can only cover these, then visa or whatever else in your life is not getting paid.
Foundational Step #3 – Make a cash flow plan
This step works intermittently with Foundational Step #4. Plan out your month in advance with Primary Goals in mind.
Foundational Step #4 – Plan for Primary Goals
- Put $1,000 in an Emergency Fund ($500 if you make under $15,000).
- Pay off all debt. I recommend using a system such as the debt snowball method
- Build a fully funded Emergency Fund (3-6 months expenses). See importance of an emergency fund
Foundational Step #5 – Plan for Secondary Goals
- Invest into tax shelter retirement plans or company match retirement plans. Recommended percentage is 15%.
- Long Term Goals (College Fund for Children, Pay off Home early, etc.)
