Imagine this: a life without financial worry, filled with trips, the ability to get what you want when you want, and all-around security. That is what you have to look forward to when you are getting ahead financially. To be “ahead” financially means you are no longer living paycheck to paycheck, you have a plan for your debt, and you are in a position to get the things you want and need.
While it can take minutes to set you back financially, it can take years to undo those actions and turn out on top. Don’t let that discourage you though! You can learn from your mistakes and get to a safe financial place. However, there are certain crucial elements for getting ahead financially. Without these elements, you won’t get where you are trying to go.
Crucial Elements for Getting Ahead Financially
If you currently have the mindset of:
“I’ll figure it out later”
“I can always pay my credit card off”
You need to change your thought process if you want to get ahead financially. No longer should you think of living in the moment with your spending and finances. While it’s good to enjoy each and every moment as it comes, you need to think about the long-term effects of your current actions. I believe that your finances are the only area where it isn’t appropriate to think “YOLO”!
When you decide that getting ahead financially is a top priority, you have to think of each purchase as a stepping stone getting you closer to or farther away from your ultimate goals. You should be ready to avoid buying things you don’t need. You should be ready to save your money and not touch it. You should be ready to make sacrifices, especially when you haven’t made them before.
You must get your mindset in order if you want to succeed at improving your finances.
#2 A Clear Understanding of Your Situation
Once you have put your mind to getting ahead financially, it’s time to get real about your situation. This can be very intimidating, daunting and ultimately scary, but guess what? It must be done! In order to move forward and come out on top, you need to understand exactly where you stand with your money. To understand what your current situation looks like, you need to get a list going. Your list should include:
- Your income on a monthly basis
- A list of your expenses on a monthly basis
- Current credit card balances
- Current balances on other debts (student loans, auto loans, personal loans, etc.)
- Current account balances for all accounts (checking, savings, investments)
Once you have your situation on paper (or in excel), add up your monthly expenses, the current debt balances, and your current account balances. What do the numbers show you? You will want to compare your monthly income to your monthly expenses. Are you earning more than you spend? If so, that’s a great start. If not, you need to reduce your expenses or increase your income (or both).
Next, compare the balances in your accounts against the balances of your debts. Do you currently have more liabilities (debts) than you do assets (cash, investments, etc.)? If so, you have a negative net worth. Don’t worry, most people do. However, it’s important to know where you stand so you can start making positive changes.
Make a mental note of where you currently stand, and vow, from this point forward, that you will never be in a worse position than this. This is where your mindset comes in!
#3 A Clear Understanding of Where You’re Trying to Go
After getting a clear picture of your current financial standing, you will need to think about what changes need to be made. First and foremost, if you are spending more than you make each month, you MUST make a change. If you have more money going out than coming in each month, you won’t be able to get ahead because you will always be behind.
You need to decide what expenses can be cut back or cut out, and you also need to think about increasing your income.
If you have a surplus every month, but you have a negative net worth, you will want to work to change that. The best way to turn a negative net worth into a positive one? Decrease your liabilities (your debts). You will want to start with high interest-bearing debts like credit cards, personal loans and payday loans. These debts typically have high interest rates, so the longer you keep a balance on these cards, the more money they are costing you.
If you have a surplus every month and a positive net worth, the next step should be working to increase your wealth. Think about investing more, starting a business, or finding other ways to continue to get ahead. At this point, you will want to think about the things you want out of life. Do you want to own a home? Do you want to travel the world?
Whatever you want, you should start saving for it. You are in a great position to reach your goals, but certain actions like investing and building wealth can help you reach them faster.
#4 A Plan to Help You Get There
Now that you know where you currently stand and where you want (or need) to be, you can create a plan to help you get there. By plan, I mean a budget! You need a budget to help you allocate your income appropriately to the things that need to get taken care of.
You will want to ensure that all of your bills, living expenses, minimum debt payments, and a small savings is taken care of each month. Once income is allocated to those areas, you can use the left-over income to make bigger debt payments or invest.
Your budget will be a living, breathing document and ultimately subject to change, as your situation changes. However, it will be a great guide to follow month over month to help you make progress towards becoming debt free or reaching your savings goals.
#5 Discipline and Consistency
It’s not easy to get ahead financially. If it were, we would all be in a great place, and I’d be out of a job! Discipline, consistency and sacrifice are absolutely essential to getting ahead financially. You must be willing to say no to doing things or spending on things that slow your progress.
It can be hard to turn down a girl’s trip, or consistently make food at home, but it must be done for true change to happen. It starts with your discipline, but it ends with consistency.
Discipline is not effective if it’s not consistent. You must consistently sacrifice, because it will take time to pay off your debts or save for that down payment. For me, I’ve found that the best way to stay disciplined is to always have an eye on my end goal.
I have weekly reminders to keep saving for my down payment. I have check-ins with my spending to ensure that I am staying in budget – I make sure to budget for a little fun, but I fully understand that anything excessive is keeping me further away from owning a home.
Accountability can make staying consistently disciplined so much easier. Whether you are accountable to yourself, your coach, your friends and family, or your community (via a blog or social media), you now have shared your goal and don’t want to fall back on it. Accountability can also make it easier for you to stay on track when you’re ready to break. If your co-worker is on a budget with you, you guys can stay at the office to eat lunch you brought from home, as opposed to going out to eat.
If your friend knows you are on a budget, she won’t invite you for things that will encourage you to spend more than you should. Accountability can be a wonderful tool for staying on track towards getting ahead financially.
Getting ahead financially can be achieved by anyone. If you have the 6 elements listed above, there is no stopping you from getting where you want to go. If one of the elements above is missing, you could be slowing your own progress. Are you ready to get ahead financially? What elements do you currently have or are currently working on?