Step 1
Assess Your Financial Health Honestly
Defining the problem correctly gets you halfway to the solution. It is really, really important! Therefore, I suggest 4 actions: 1) Take a quick asssessment to get a feel for your financial health; 2) Complete a snapshot of your current financial status (Net Worth Analysis); 3) Calculate your recent monthly income and spending (Cash Flow Analysis); 4) Write down your top 1-3 problems/worries and your top 1-3 goals.
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Step 2
Create a New Budget
How are you going to use your monthly income? What is your plan for every dollar of income you earn? That written plan is your budget. Budgeting and tracking your actual spending against your budget is critically important to your financial health! It can take a few months to get the hang of it, so please don't give up. And don't expect to do it perfectly - just make an intentional, healthy plan, and continue to learn over time. You can do it!
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The FaithFi and EveryDollar apps are great tools for creating a monthly budget and tracking spending.
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Step 3
Save a Small Emergency Fund
As fast as you can, save up an Emergency Fund of $1,000-$2,000. If you have an unexpected car repair or medical expense, the funds will help you avoid putting it on a credit card and increasing your debt. Accomplishing this first goal will also give you great confidence and motivation to get financially healthier and stronger. Great job! Keep going!
Step 4
Make a Plan to Be Debt-Free
Usually, the best way to do this is to: 1) List all your debts from smallest to largest in terms of the balance owed; 2) Use all of your available cash flow to pay off the smallest debt as fast as possible; 3) Use all of your available cash flow (which is now larger) to pay off the next smallest debt; 4) Continue until all your debt is eliminated. (I'm not including your home mortgage in this step.) 5) Celebrate! Your financial health just reached a recovery milestone. Great job!
Step 5
Save a Full Emergency Fund
Save up a Full Emergency Fund of 3 to 6 months living expenses. This will be a big #, like $10,000 to $30,000 or more. If you're debt free now, it may not seem very fun to save all the money you have freed up in your budget, but THIS STEP IS SO IMPORTANT! It will create a foundation that will give you financial strength, confidence, and peace. It will provide a major defense system that is needed in your battle against the many risks and unexpected events you will face. It will turn events that used to be a major crisis into relatively mild annoyances, and it will dramatically reduce your stress regarding money. Please be wise and work towards building a full emergency fund. If you do, you will get stronger financially and emotionally.
Step 6
Save for Large Needs
Most people and families will have some needs and goals that require large amounts of money, for example, a down payment on a home, furniture, vehicles, college for children, paying off home mortgage, and retirement. If you have learned how to manage a budget, paid off debt, and built an emergency fund, then you have developed the financial muscle, processes, and habits to be able to set additional savings goals and achieve them. Continue working hard, praying for wisdom, being generous, and "remember the Lord your God, for it is He who gives you the ability to produce wealth…” Deuteronomy 8:17-18