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10 steps to financial health

Updated: Oct 10, 2023

Taking steps to secure your finances and feel financially safe can be hard. Truthfully it can be really hard. You have to make choices that you may not want to make. FOMO is not for those who want their finances in a healthy spot. Unless you make like a whole, literal, boatload of money and don’t need a budget or to save for the future or anything like that. For the other 90% of us that do need some guidance let me dive into the 10 steps to financial freedom that have helped my family get on track.

  1. Create a budget

  2. Use your budget to pay off debt

  3. Start saving in your 401k

  4. Start saving in your savings account

  5. Build an emergency fund

  6. Find a side hustle or better job

  7. Find insurance

  8. Pay off all debt quickly

  9. Invest in something

  10. Define your success

Each step was carefully considered and deliberately put in the order above because they build upon one another. I'll detail how they build in the paragraphs below.

Some of the steps below won't apply to you and some will. This will depend on where you are in your personal finance journey. If you are just beginning, or need guidance because you have lost your way then beginning at step one will make sense.

For maximum impact, think over each step and honestly evaluate if you have accomplished the step before moving on. If you have started saving for your 401k, but don't have a budget in place, then maybe you should step back to your budget and ensure that investing in your 401k fits with the goals that the budget lays out.

Create a budget

Budgeting can be tiresome and difficult. I have two solutions for you. First, you can click here and get a copy of my free budgeting tool. Second, you can click here and sign up for PocketSmith . PocketSmith is the best budgeting tool I have reviewed to date (and I've reviewed a ton).

If neither of those paths works for you just form your own. Whatever your budgeting efforts look like just make it happen. Ensuring you are spending less than you make is critical for each of the steps below. This is the base of your financial health pyramid.

Use your budget to pay off debt

Having debt can be daunting. I'm looking at the $1.6T in student loan debt and thinking to myself that there are some folks out there struggling hard to get buy.

Another key reason to eliminate debt early is security. If you have no debt and lose your job you are in a better situation. Imagine if you are 10 years into your career, have no debt, a home paid off, and you lose your job. Well, at least you have a place to live.

Paying off all your debt before you start to save for a 401k, or buying a house is not the right move for anyone and I'm not advocating for that. What I'm saying is to build a budget to aggressively pay off debt and ensure your future security.

The last thing to consider here is debt vs investments. At a certain point, it makes sense to apply more of your income toward investing vs paying down debt. This is hard to calculate and/or know so let me provide some basic guidance. If your debt is larger than your total investments then you should be allocating more of your budget toward debt vs investments. Where this gets complicated is the interest paid vs interest earned. As debt and investment totals get closer to one another you need to consider how much interest you are paying on your debts vs how much interest you are earning on your investments. Once the amount you are earning on your investments is larger than your debts it signals the right time to shift your extra money over to more investments.

Start saving in your 401k

As early as you can manage you should begin investing in your 401k. The first benefit is that it grows so much over time. If you invest $100 per month from your first paycheck to your last, you will end up with over $250,000 in retirement savings. If your employer matches any part of your 401k that retirement figure can be much larger.

The second benefit of investing in a 401k is tax-related. If you make $50,000/year and invest $100/month you reduce your taxable income by $1,200. Based on the 2020 tax brackets that are available you will pay a 12% rate.

If you make $60,000/year and invest $100/month you end up paying a 22% rate. If you up your savings rate to $700/month you pull your tax rate all the way down to 12%. I suggest you use this tool from SmartAsset to see what tax rate you will pay based on a few basic inputs. I cross-reference that with the tax brackets on NerdWallet because NerdWallet is an awesome site with a ton of useful tools for personal finance.

Start saving in your savings account

There is a balance that needs to be made between your 401k and your readily available savings. Your first step should be to invest as much as your company will match. If you are doing that, then every other dollar you can save should go toward your savings account until you hit a number you feel comfortable with.

Build an emergency fund

Most people consider a savings account and emergency fund the same thing. I delineate here because an emergency fund should be used only for emergencies and a savings account should be the place you save up for big purchases like cars, down payment on a house, or vacations. Emergency funds are to be used for hospital visits, unexpected loss of job, or a natural disaster.

Trying to determine how much you should have in your emergency fund can be tough. Learn more about how to determine what amount should be in your savings.

Find a side hustle or better job

Now that you have your foundation set it's time to really lean into finding ways to make more money, here is a list of 10 ways to make money from home. The only way to accelerate each of the steps before is to make more money and allocate those funds toward each previous step.

In order to make more money, you need to do one of two things.

1. Get paid more in your career.

2. Negotiate a better salary (we wrote an article on that)

3. Find a side hustle (we wrote an article on that too)

Any of these options can have a huge impact. Check out our Facebook page to find out how large an impact that can be!

Find insurance

At this point in your financial health journey, you should be ready to research insurance. Your finances should be in a fairly good place and adding life insurance to the mix is a prudent option.

You may be wondering, "why do I need life insurance I'm so young". That is a great thing to wonder and if you don't believe the timing is right then don't go down that path. If you have kids, you should buy insurance. If you have family that couldn't afford your funeral and you don't have enough savings to cover it, then you should have insurance. If none of those things apply to you, then, most likely, you don't need insurance and can skip to the next step.

Pay off all debt quickly

If you have followed the above steps and completed the ones that make the most sense to you it is time to lean in and knock out your debt quickly.

Utilizing any extra funds you might be able to afford and paying down your debt will further free up cash flow in the future for emergencies, peace of mind, alternative investment options, or anything else you can think of.

Ultimately, this entire plan is about unloading debt and becoming financially free.

Invest in something

You should already be investing in your 401k, you should have knocked out all, or most of your debt, and now you should have some extra cash lying around that you can invest. The question is, what do you invest in? That is really hard to say and is very much a personal decision. In my experience, the following are relatively easy to accomplish. Please keep in mind that this is not financial advice, this is me simply sharing my experience.

1. Stocks that pay a dividend

2. P2P lending

3. Mutual fund

4. Real Estate investment platform (Fundrise, etc.)

Define your success

Personal finance is a journey of your own making. Only you know what will make you happy and feel secure. You may only need a few dollars in your bank account and good friends around you in order to feel safe and secure. On the other hand, you may want/need $20,000, or more, in order to feel the same way.

All of that is entirely up to you. The pages above are solely intended to give you a guide that will help you clear debt and free up cash. You can choose to follow these steps, as my family has, or you choose which steps you prefer and follow those.

In the end, this is all entirely up to you.


Following the steps above will not ensure your financial situation improves. It is only a guide that has helped my family and friends find their way to a better financial situation. It doesn't work for everyone.

Hopefully, it does shed some light on what types of behaviors you can and should take in order to improve your own personal finance situation.

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