Steps 1 & 2 Steps 3 & 4 Steps 5 & 6 Steps 7 & 8 Steps 9 & 10 Quiz

Being financially successful means you are in control of your money instead of it controlling you. Your income doesn’t necessarily determine how financially successful you are – your choices and priorities do. If you are struggling, financial success may seem like a distant dream, but by following these ten steps, you can make that dream a reality:

  • Step 1: Establish Goals
  • Step 2: Take Stock of Your Current Financial Situation
  • Step 3: Create a Spending and Savings Plan
  • Step 4: Establish an Emergency Savings Fund
  • Step 5: Invest Diversely
  • Step 6: Make Sure You’re Covered
  • Step 7: Establish a Good Credit History
  • Step 8: Delete Your Debt
  • Step 9: Buy a Home
  • Step 10: Seek Advice and Do Research

Step 1: Establish Goals

Identifying clear, achievable goals is a crucial part of anyone’s financial plan. A financial goal is the exact amount of money needed for a specific purchase or service at a definite date. Making the goal precise helps you determine how much you need to set aside each month and track your progress.

There are three types of goals: short-range, mid-range, and long-range. Short-range goals are to be met in one year or less, mid-range in one to five years, and long-range in five years or more. Vacations, gifts, and electronics are typical short-range goals. A down payment for a house is a common mid-range goal. Long-range goals may include saving for retirement and a child’s higher education.

The Financial Goals Chart can help you determine the timeline for your goals and the amount of money you’ll need to regularly set aside in order to reach them. You may find the numbers daunting or even not realistic based on your current financial situation. (Completing Steps 2 and 3 can help you determine how realistic your goals are.) You may be able to increase your income and/or decrease your expenses or have to consider adjusting your goals. Determining your priorities is essential. If you share your finances with someone else, discuss and set priorities together. It is not uncommon for couples to work at cross-purposes financially without even knowing it. By communicating with each other and determining what’s most important, it will be much easier to reach your goals.

Step 2: Take Stock of Your Current Financial Situation

Taking stock of what your financial situation is today can help you determine what you need to do tomorrow. Are you on the right track or do you need to make changes?

Net Worth
Assets are things you own that have monetary value. They can include houses, cars, furniture, checking and savings accounts, certificates of deposit, retirement funds, stocks, bonds, and more.

Liabilities are monetary obligations to other people or companies. Mortgages, car loans, credit card debt, personal loans, and student loans are common liabilities.

Your assets minus your liabilities is your net worth. If your net worth is positive, that means you own more than you owe. If your net worth is negative, that means you owe more than you own. Complete the Net Worth Worksheet to see where you currently stand.

Your net worth is a snapshot of your finances at one point in time. It is a good idea to calculate your net worth at least once a year. Your net worth should increase over time. If it is not, either you are not saving enough or taking on too much debt. Adjusting your spending and savings plan can help you change this (discussed in Step 3).

Cash Flow
Do you know exactly where your money is going each month? If not, you are not alone. Many of us are well aware of the symptoms of financial distress we are experiencing, such as having credit card debt, overdrawing a checking account, not being able to save, or paying bills late, but are not sure of the cause. Assessing your cash flow can help you figure that out.

Incomes are cash in-flows. The most common source of income is wages from a job, but it can also include things like investment earnings, child support, alimony, rental payments (if you are a landlord), government benefits, gifts, and profits from self-employment or a hobby. While gifts, child support, and some government benefits are generally not taxable, most income is. Your gross income is your income before taxes are taken out. Your net income is your income after taxes are taken out.

Expenses are cash out-flows. They can include essentials, such as mortgage or rent, food, and medical costs, as well as things you choose to spend money on, such as piano lessons and vacation. Savings can be considered an expense too – the money may not be leaving your hands, but you are setting it aside to not be used for other purposes.

Use the Cash Flow Worksheet to list your income and expenses. To get as accurate figures as possible, you may want to track your daily spending. (If your income is irregular, it is a good idea to track that too.) You can use the Tracking Worksheet. To determine a monthly amount for periodic income and expenses (such as vacation), figure out the per year amount and divide it by 12.

If your income exceeds your expenses, you have a positive cash flow. If your expenses exceed your income, you have a negative cash flow.

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