What do you feel when you think about your money? Do you dread logging in to your bank account or opening up your budget? Do you worry about having enough to cover an unexpected emergency?
You’re not alone. The Financial Health Network reported that in 2019, less than one-third of Americans were considered financially healthy. And 20% of women admitted that a lack of financial security causes them “a high amount of stress.”1
That’s because money usually carries an emotional response with it. It can be total elation after getting an unexpected bonus at work, or it can be a sense of hesitation or fear going into a budget conversation with your spouse.
But you guys, I believe money should be fun, not stressful! And in order for that to happen, you’ve got to have your feet on solid financial ground. If you’re looking for financial security in your life, try these five things:
1. Kiss your credit cards good-bye.
Can you imagine waking up tomorrow owing exactly $0 to a credit card company? That can totally be you one day . . . if you cut up your credit cards today.
The biggest argument I hear for keeping credit cards is the rewards. Oh, people love their credit card points. From cash back to airline miles, manipulative credit card companies have done a great job drilling this concept into our minds.
But I’ve never met a wealthy person who told me, “The secret to my success is all in the credit card points.” Credit cards are not the way to financial security. In fact, they’ll take you in the opposite direction.
Think about all the extra money you’re spending to “earn” those airline miles. A buy now, pay later mentality causes people to spend more than they would with their own hard-earned cash. And that’s even before the interest kicks in.
You know what else you can book flights and hotels with other than credit card points? Actual money in your own checking account. Yup. You guys, the only thing you earn with a credit card is a lot of debt, stress and worry. The random perks, airline miles and free pizzas the credit card company throws your way aren’t worth paying crazy amounts on interest and putting your financial stability at risk.
2. Build up an emergency fund.
Nothing will give you peace of mind and financial stability like an emergency fund. An emergency fund will be your safety net when emergencies happen—and they will happen, so plan for them. It’s hard to become financially stable if you keep going into debt because of emergencies, so putting some money in the bank is the first step to financial security.
Too many people reach for their credit card when their car breaks down, but all that does is turn a car problem into a money problem. Then, compound interest turns the money problem into more and more debt, stress and worry. However, when you have actual money in the bank just for emergencies, you can simply get the car fixed. No stress. No drama.
It can be difficult at times to build this up, but if you make it a priority, it will happen.
Begin with the starter emergency fund of $1,000. This will cover smaller emergencies while you’re getting out of debt. Once you’re out of debt, you should take your emergency fund up to a full three to six months of expenses.
3. Attack your debt.
Cue the confetti because this is an exciting part of your journey toward financial security!
Your number one wealth-building tool is your income, but debt steals your income. And on top of that, making all those payments is annoying. So it’s time to eliminate debt for good.
The best way to get out of debt is to use what we call the debt snowball. Here’s how it works:
- List out all of your debts, except your house, from smallest to largest—by balance, not interest rate.
- Pay off the smallest debt first while paying the minimum payments on everything else. You have to get mad at this debt! Take as much money as you can and throw it at the smallest debt on the list.
- Once that is paid off, take what you were paying on that one and roll it to the second smallest debt and so on until you’re debt free!
This is the most effective way to pay off debt because it addresses the real problem.
Money isn’t all about math and interest rates—it’s also about your behavior. So, by paying off the smallest debt first, you get a quick win. And we all love that, don’t we? Even if it’s a $300 debt on a department store credit card, put it on the list and pay it off. When you’re done with it, cross it off the list and move on to the next one.
Quick wins help you stay motivated throughout this process and get you ready for the challenge of paying off bigger debts. And once you’re debt-free . . . well, that leads to true financial security.
4. Live on less than you make.
If you want to attain financial security, you need to take advantage of your greatest wealth-building tool: your income. So, whether you’re trying to find money to build up your emergency fund, pay down debt, or invest in your future, your paycheck is the best place to start.
What can you do to maximize your take-home pay? Spend less of it!
Instant gratification will get you into trouble time and time again. If you can learn to tell yourself no and be content with what you have, you’ll be more financially stable than you’ve ever been before. No more overdraft fees. No more living paycheck to paycheck. No more spending money you don’t have to impress people you don’t even like.
Remember that making minor sacrifices now will pay off in the long run. Know what your end goal is, and then go after it!
5. Invest 15% of your income after you’re out of consumer debt.
A huge piece of financial security is knowing you’ll be taken care of in retirement. For you, that might mean retiring early to pursue your dream business idea or being able to travel like you never have before in your golden years. (Personally, I want to visit Disney World at least two or three times a year.)
After you dig yourself out of debt (except for your mortgage) and have three to six months of expenses saved in your emergency fund, you’ll be in a pretty good spot in life, right? Zero payments and a sweet safety net will have you feeling more financially stable by the day.
Once you’ve built that strong financial foundation, it’s time to start investing 15% into retirement.
Here are the four places I recommend you invest:
- 401(k) plans
- 403(b) plans
- Roth IRAs
There are a million rules and details when it comes to investing, so you always want to work with an investment professional you trust. This person should explain to you, in terms you understand, how these investments work.
If you’re curious about how much you’ll need to retire comfortably, investing expert Chris Hogan has a tool to help you figure that out.
Financial Security Is Closer Than You Think
So many people feel stressed about money, but that doesn’t have to be you. Don’t let your debt, fears or stress stop you from reaching your financial goals. Push through!
As much as I wish there really was a magic genie that could make all of our financial dreams come true, that’s not reality. The reality is that you can live the life you want, but the real magic is in getting to know yourself and your own money tendencies.
That’s why I wrote my brand-new book, Know Yourself, Know Your Money. This book will help you:
- Discover your unique set of beliefs about money so you can understand why you handle money the way you do
- Overcome shame and embarrassment around money so you can feel confident in your money decisions
- Learn how to make lasting change so you can make actual progress with your money like never before