Talking about foundations comes naturally to me. Dad was in commercial and later residential construction and for many years I have been in the interior design industry. When I talk about “designing the life you want” and the importance of “setting the foundation” this is where it came from. Now you know the backstory.
Are you tired of being sick and tired? I know I was and more so when I struggled to find answers about how to start. Step one – make the decision to take control of your money, even if it’s messy. Think about it this way. When you’re in the middle of construction it’s vital for your builder to work from a set of plans. Your monthly budget is your architectural plan. It’s specific to you and not your sister’s family or even your parents.
Everyone’s journey will look different and that’s ok. The next couple of articles will take you through building your foundation, no matter your situation. Let’s build your financial house.
What is a financial foundation?
When building a home, you begin by pouring the foundation. On that foundation, your walls, ceilings, and roof are held in place. It’s the same thing with your money whether you have hundreds or millions. A financial foundation is the essential set of habits to create the security and stability you need to design, build, and live the life you want.
When you are debt-free, it’s easier to build wealth. It also provides you options to leave a bad job or an unhealthy relationship. Think about this question. How would your decisions be different knowing that when you stumble, you have the resources to get back up? You begin operating from a source of strength, not uncertainty or fear.
It sounds like a lot of work, and it is, especially in the beginning. Small steps will equal huge rewards and the strong foundation you need, for any storm that comes your way.
Know your spending habits
First things first: Know where you’re at today. Log in to your bank account and credit card statements and look through your last 2 months of purchases. Note beside each expense what you spent the money on. Groceries, pet needs, savings, fuel, utilities, housing, credit card payment, car payment, etc.
Next, total each category. How much are you spending on each category or bucket per month? No wrong answers — this step isn’t meant to make you feel guilt or shame; it’s to show you where you’re starting from. The stakes have been placed, the concrete truck has pulled up and we’re beginning to pour your foundation.
Know your monthly income
Next, total your monthly income amount. Are you a W2 employee paid bi-weekly or twice a month? Are you self-employed, have side hustles, income from investments, or social security? Now, compare how much you’re spending to how much you’re earning. This is key for two reasons:
Guess what, by now, you’ve pretty much done all the work that goes into creating a written budget. WooHoo!! You’re beginning to have a plan to ensure your money is doing what you want it to each month.
Take advantage of an employer 401(k) match
If your employer offers a 401(k) employer match but you aren’t taking full advantage of it, now’s the time to dive in and start contributing enough to get the full match. It’s free money, y’all. The only time I recommend you don’t do this is if you’re currently in a money crisis such as collection calls.
The most common offered 401(k) match is 50% up to 6%. What does this mean for you? Translation – if you contribute 6% of your income to your 401(k), your employer will match half of it, so 3%. It’s an instant 50% return on your money — this is too good to pass up.
Save one month of income for a baby emergency fund
Financial emergencies have and will always be a fact of life. Even worse, they always happen at the most inconvenient time. Cars need repairs. People (and pets) get sick. Phones and computers break. This is why I focus so much on building your emergency fund. It’s not worth losing sleep over “what if”.
In the past, actions were to tackle high-interest debt before starting an emergency fund. The thinking was, that if you had an emergency in the meantime, you just use your credit card to cover it. But why add to the debt when you’re working so hard to get rid of it!? I want you to have a cash buffer in place at the same time you’re paying debt off. All my clients are working to pay off debt AND build their baby emergency fund together.
For each pay period we split the difference: Some months it may be 50/50 but most of the time it’s not. Each month will be different, and we adjust along the way.
Does it sound overwhelming? It can be but just like building your home we draw up a plan and begin building one step at a time.
Your foundation is poured and we’re ready to begin building walls and making this a home. Watch for the next installment in this series.