You don’t need a financial planner or a PHD to turn your financial life around. All it really takes to get out of debt and start building wealth is to take control in areas that you have control over.
This is the beginning of a series, where I will take you through the basic phases of a personal financial plan. My goal is to keep this series as short and to the point as possible.
There are only two steps you need to complete to get an A+ in Phase 1:
- Track your expenses
- Build an emergency fund
Step 1 – Track
The first step is as simple as you’re going to get and doesn’t even cost a dime. All you have to do is start tracking your money. Account for every dollar that goes in and out of your life.
I recently wrote in more detail how you can start a budget in as little as 5 minutes a week or less.
Step 2 – Build a $1,000 – $2,000 emergency fund
An emergency fund is savings specifically set aside for get this…”emergency situations.” Therefore, next time you lose your job, have unexpected medical expenses, or a major car repair, you are not digging yourself in deeper debt.If you’re single and only supporting yourself, build up $1,000 of savings. If you have a family, chances are many more things can and will go wrong. Therefore, build a $2,000 emergency fund to start with.
Eventually, the goal will be to have an emergency fund covering greater or equal to 3 months of living expenses. For now, set aside enough cash that you won’t have to dig yourself deeper in case Murphy’s Law strikes again.
The purpose of these simple steps is to get you started. The hardest step will be the first one. It’s downhill from here.
If you already have Phase 1 completed, you’re off to a great start. Check back soon for Phase 2.