5 Easy Steps to Improve Your Financial Security

5 Easy Steps to Improve Your Financial Security

December 17, 2021

5 Easy Steps to Improve Your Financial Security

At Fiduciary Financial Partners we are committed to educating our clients and the community in order to improve their financial lives. In our last blog we broke down the pros and cons of 401(k)s and Roth IRAs, but today we will focus on 5 Easy Steps to Improve Your Financial Security.

1) Pay Yourself First

Pay yourself first is one of the oldest phrases in financial planning. All this means is that you make your long-term financial progress your number one financial priority. We all have lots of things that are competing for our dollars, right? The mortgage, the kids' activities, college savings, paying off student loans, etc., but paying yourself first makes saving and investing for your future a mandatory part of your budget. This is why this should be one of the first things that you do.

2) Give Yourself a Raise

When you get a pay raise or a cost of living adjustment at work, that's a great time to review and bump up your savings and investment program a little bit. This is going to help you stay on track for your long-term goals and increase the amount of your projected retirement income.

3) Create a Budget

Controlling your cash flow is the most important step to making financial progress. The importance of this can't be overemphasized. Before you can determine how much retirement savings you're going to need, how much you can afford to spend on a vacation, how much you have to put towards paying down debts, or what a reasonable amount to spend on a car is, you have to understand what your monthly cash flow is.

That's what creating a budget is all about. It's understanding what's coming in, what's going out, and which expenses are mandatory. Then you will be able to determine what to do with what's left. Budgeting is a wonderful free tool that anyone can use. It's the foundational step for everything else.

4) Reduce Discretionary Expenses

Eliminating expenses where possible always helps. Do you have a gym membership that you don't use or a streaming service that you don't watch? Maybe you spend too much at your local Starbucks? All these are examples of discretionary expenses. Since they're discretionary, they could be reduced or eliminated if you need to free up part of your cash flow to put towards things that you've decided are more important long term.

5) Work to Eliminate Debt

Not all debt is necessarily bad, but any that charges an interest rate that is close to or higher than what you could expect to earn on your invested capital over time is considered high-interest debt.

For example, if we look back over long-term market performance and see stocks have averaged around 9% per year, any liability or loan that charges close to 9% in interest would be considered high-interest debt. Credit cards are the most common example as they notoriously charge interest rates in the high teens or twenties. The first step is to make sure that you know what your interest rates are on your debt balances if you have any. If you find you have high-interest loans you will want to accelerate the repayment of these liabilities by attacking the highest interest loan first.

These are the five steps that we believe if you focus on and revisit regularly, will put you on track for long-term financial success.