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10 Steps for Financial Success Program Recap

Home 10 Steps for Financial Success Program Recap

Thank you to Amanda Griffith from the Credit Union of New Jersey for sharing 10 aspects regarding personal finances that are important to ensure a healthy financial future.  Finances can be very difficult to navigate and master, especially if someone is struggling with debt or lack of income.  However, there are steps we can all take regardless of our financial situation to make us more financially stable.

Please download a copy of the handout that includes worksheets to help you as you move through each step.

Step 1 – Establish Goals

The first step on your financial journey is to determine what are your short and long-term goals.  These can be personal as well as financial.  Be sure to take into consideration your needs as well as your wants, but be specific and realistic.  By understanding what you want to accomplish or prepare for, you can more easily identify the steps you need to take to accomplish those goals.  

Step 2 – Take Stock

You can develop a starting point by taking stock of your current financial situation.  Determine what you own, such as a house or a car, as well as what you owe, such as student loan debt, credit card debt, or taxes.  You can use these categories to help calculate your net worth, or the sum of all of your assets.  This can help you gain a sense of your current financial standing and how much you need to save or invest to meet your goals.

Step 3 – Create a Budget

Once you have a sense of your overall financial situation, you should create a budget to determine your monthly net gain or loss.  Identify all sources of income with their amounts and then identify all of your monthly expenses.  These can include fixed recurring payments, such as mortgages or student loans, as well as variable expenses, such as utility bills, food, and gas.  By creating separate line items for each expense, you can more accurately determine how you are spending your money and if you have room to start saving or if you can commit more money to paying down your debt.

Many banking institutions provide online banking services that include a general breakdown of your expenses to get a rough idea of how you are spending your money on a monthly basis.  Generally, your monthly expenses should equate to the following percentages of your monthly net income:

  • Housing (mortgage, rent, property taxes) – 35%
  • Other (child care, food, entertainment, retirement) – 25%
  • Outstanding Consume Debt (credit cards, personal loans) – 15%
  • Transportation (car loans, public transportation) – 15%
  • Savings (liquid assets rather than investments) – 10%

By creating your budget, you can calculate your bottom line by subtracting your expenses, debts, and savings from your income.

Step 4 – Live Within Your Means

One way to improve your financial situation is to increase your income through another job.  Unfortunately, that can take time and finding the right job for your personal situation can be difficult.  In order to make a more direct impact on your finances and increase your bottom line, try to limit your expenses by living within your means.

There are things that you need to have to survive; food, shelter, clothes.  But there are also many other things that can be considered luxury or non-essential that take away from our available money.  Prioritize your spending and look for ways to reduce, substitute, postpone, or forego certain expenses.  For example, you can save a lot of money if you eat out less often or downsizing your residence to reflect your current household needs.  Additionally, you can postpone long-distance vacations for shorter and less travel-intensive trips to save money while still spending quality time with yourself or family.

Step 5 – Pay Yourself First

While we are quick to pay others for goods and services, we often forget to pay ourselves first through savings.  It is recommended to put 10% of your monthly income into some sort of savings, whether it is an envelop of cash in a safe or a savings account at a financial institution.  If you can’t save 10%, start with a minimal amount; the important thing is to start and develop that habit.  If you receive direct deposit, you can set it up to have a certain amount sent to a savings account automatically.

A great way to start saving is to create a 3-tiered savings plan:

  • Short-Term – create an emergency fund that is easily accessible (cash, savings account) and equal to 3-6 months of your essential living expenses.
  • Medium-Term – should be aligned your goals for the next 2-5 years and use semi-liquid assets such as CDs or a money market account.  With these assets, your money is tied up for the duration of the asset, but it will grow in value through interest accumulation.
  • Long-Term – These tend to be investments in things such as stocks or bonds aimed at building wealth for the future, including retirement or education for children.  If your employer offers a match to a retirement plan, always try to max out that match.

Step 6 – Delete Your Debt

We should all strive to live a cash lifestyle where we are free of any debt.  There are many important reasons to take on debt, including transportation, buying a house, or improving one’s education.  However, we can easily fall into bad debt by using high-interest loans to pay bills or credit cards for purchases that have no lasting value, such as food, gas, or vacations.  By limiting the bad debt and paying off the most expensive debts first (often highest-interest), you can free up more money to put away or continue to pay off other debts to become debt-free faster.

There are a few strategies for paying down your debt, especially high-interest debt like credit cards.  Talk with a certified credit counselor or your financial planner to determine the right plan for you.

Step 7 – Buy a Home

Homes can be a great investment as they generally appreciate in value over the long term.  Additionally, home-owners receive extra tax breaks, including property tax deductions.  While not everyone can or should buy a home, if it fits within your budget and your goals, it can be a great way to ensure income in the future.  If you want to buy a home, start saving now to ensure you have roughly 20% of the purchase price for a down payment to avoid paying PMI, private mortgage insurance.  Additionally, work to build your credit score by paying down high-balance debts to secure a low interest rate.

Step 8 – Diversify

Once you start accumulating wealth and planning for your long-term goals, it is important to make sure to diversify those investments to better guard against downturns in the economy.  As with all investments, you should speak with a financial advisor or planner to figure out your goals and the best investments to meet those goals.  Try to spread your money out over stocks, bonds, and liquid assets such as cash, so that you are better able to weather the storm should one of those assets become less valuable.  As market and economic conditions change, adjust your money allocation to take advantage of those changing conditions, but always remember to weigh the risks versus the return.

Step 9 – Plan Ahead

Planning ahead often refers to retirement, but many people forget how insurance can help deal with unplanned events or inevitable life events such as death.  Major insurance options include health, life, disability, homeowners/renters, and automobile.  Some insurances are required, such as auto or homeowners, while others are recommended, such as health or life insurance, to ensure you or your loved ones are financially secure in the event of an unforeseen or life-changing event.

Eventually we all will die and it is important to plan ahead for that as well.  Estate planning is important to make sure that all of your affairs are in order after you pass.  Make sure to have a will that sets up an executor you trust to ensure your wishes are carried out.  If you have insurance policies that provide payouts or transfers, make sure your beneficiaries are up-to-date.  It is also recommended to memorialize in writing any medical directives, such as a DNR order, in the event that you are unable to make your own medical decisions.

Step 10 – Get Help

Very few people can do all of these things alone and it is important to get help along the way.  You can use a professional financial planner or advisor to help you set your financial goals, develop a budget to identify areas of waste or saving, and plan for long-term events such as retirement.  You can also speak with representatives at your financial institution about the best accounts for your money.

The internet has a wealth of information on managing your money effectively and can be a great starting point to learn about unfamiliar topics.  You can also refer to printed materials such as books or magazines that cover a wide variety of financial topics.  Many organizations also offer seminars or programs, sometimes for free, on important topics, such as retirement planning.  An investment if knowledge is the best step forward.


More Information

If you have questions about the many topics covered in the presentation or information about your finances, please contact Amanda Griffith at agriffith@cunj.org.  If you have questions specifically related to retirement or investments, please contact Britany Enelow at benelow@cunj.org.  You can view a recording of the webinar at https://youtu.be/OUwXRJk21Ao.  For more information on a wide variety of financial topics, please visit https://www.cunj.com/financial-wellbeing/financial-resource-center/.

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