As a 20-year accountant and ten-year financial advisor, I often meet with clients that want to turn their finances around. Their first question usually is “How can I get my financial house in order?” Unfortunately, there is no magic elixir for the financial challenges that face many of us during what is considered by many to be the biggest financial crisis since The Great Depression. There are, however, basic disciplined steps that are time-tested and will put you back on the path toward that seemingly elusive but attainable goal of financial prosperity.
The first step is to obtain your credit report and credit score. Your credit report and credit score both play a vital role in our overall lives as well as our financial lives. In order to build a solid financial fortress, you will need to have a strong credit report. How do you go about obtaining your credit report? The best place to go is to annualcreditreport.com. This is the only consumer credit reporting service that is backed by the Federal Trade Commission. Their website allows you to immediately access all three of your credit reports. You have the right to obtain your credit report free of charge once per year. I have my clients obtain their report right in the office, sometimes during the initial consultation. Once you obtain your credit report, you want to examine it very carefully. Make sure that all information on your credit report is accurate and up-to-date and report any discrepancies immediately. These reports do not contain your credit score. Your credit score is recorded and kept by FICO (Fair Isaac Corporation). You may go to myfico.com and obtain your credit score. You will have to pay a fee, but the fee is a small price to pay where your financial profile is concerned.
The next step in the building of your financial fortress is to make a budget to track your spending. It’s essential to know how your hard-earned money is being spent. A budget is nothing more than a simple listing of your income sources and their amounts along with your expenses such as rent, groceries, and insurance and their amounts. A budget is very simple to create. You can make this list on something as simple as a piece of paper or a spreadsheet. Once you make this budget and start tracking your expenses you will start to see your financial picture take shape. You will see where your money is being spent and where you can start to save. Today, tracking your spending is even easier. One of my favorites is a website called mint.com. This site, once you register, allows you to connect your credit or debit card to their site. The site will then track and categorize each purchase from your debit or credit card and will help create your spending picture. You can then easily see where your money is going and where you can save.
Saving is the third building block in your financial fortress. You can start by saving 5% to 10% of your gross monthly income. You can open a savings account and deposit the savings you accumulate into that account. Another key that I emphasize to my clients is to have goals and objectives. It can be an emergency fund or a down payment on a home. The other key to saving is to treat your savings amount like another expense or another bill. When I design a budget for clients, I place savings at the top of the expense list so that savings becomes a top priority. You can also have a portion of your paycheck transferred directly to your savings account through an automatic deduction.
The fourth step toward financial prosperity is the most comprehensive and that is investment. Although this step involves several principles and ideas that are too involved to discuss here, the underlying principle for investment is to make your savings grow. You want to make your money work hard for you. This is where you plan to save for your retirement as well as invest for other financial goals. This is also where a competent financial advisor or accountant can guide you further on that path toward financial prosperity.
The financial principles discussed here will not work magic by themselves. It takes a disciplined, steady and patient approach to reach your financial goals. Although there are very few guarantees in life, I firmly believe that if you incorporate the principles outlined here along with enlisting the help of a competent professional, you will achieve all you set out to do in your financial life.