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Action Plans

Where Do I Start? A Beginner’s Guide to Getting Better with Money

By Jeff Rose

This is a post written by me on behalf of Discover Personal Loans. All opinions are my own.​

Believe it or not, I was pretty irresponsible with money until my early twenties. Not only did I spend like it was the end of the world, but I made careless financial decisions that impacted me for years. At one point in my life, I had $20,000 in debt that I wasn’t managing well—making minimum payments and paying more in interest than I’m comfortable with.

Fortunately, meeting my wife and becoming a financial advisor changed all of that. Over the course of a few years, I transformed from a money misfit into a financial expert who now helps others get a handle on their money.

Where Do I Start? Eight Steps to Take Today

While a lot of my clients are fairly established when it comes to their finances, I also meet with clients who are a lot like I was when I was younger. Some are drowning in debt or suffering from bad financial choices. Others are doing okay, but they are paralyzed when it comes to making solid financial choices for their future.

The thing is, all of them want something different – something better – for their lives.

Getting better with money isn’t rocket science, but it does require action. If you want to get better with money but aren’t sure where to start, here are eight important steps:

1. Take stock of your net worth and investments.

If you’re saving for retirement already, you’re off to a great start. Still, it’s important to take stock of your investments and figure out your net worth. Why? Because it’s hard to measure your progress when you don’t know where you’re at. By taking inventory of your current investments, you can set the baseline and go from there.

One of my favorite tools that can help is Personal Capital. While Personal Capital is a robo-advisor, they offer a ton of free tools you can access whether you’re a paying client or not. Not only can you use the service to track your net worth, but you can see how your investments have performed over the years. Even better, you can use Personal Capital’s fee analyzer to see how much you’re paying in investment fees compared to the benchmark.

2. Total up your debts, and hatch a plan to pay them off.

If you do sign up for Personal Capital, you may want to connect all your bank and credit card accounts to the system. Doing so will tell you another important detail about your finances – how much money you owe.

If you’re struggling with debt like I did when I was younger, one of the most important steps you can take is tallying up your debts and creating a plan to pay them off.

adding up bills

From there, you can decide to pay down debt the hard and slow way, or to consolidate your debts with a debt consolidation loan.

3. Check your credit score.

Your credit score is the numeric manifestation of your overall credit health. Your number will fall between 300 and 850, with a higher score being better.

Fortunately, this part is easy. You can find out your score for free with Discover’s Credit Scorecard whether you’re a customer or not. Once you find out where you’re at, you can hatch a plan to improve your score over time.

4. Get on a monthly budget.

Too many people have no idea how much money moves into – and out of – their household. They pay bills as they arrive in the mail (or let them pile up) and buy what they want, only to end the month low on cash and confused.

If you want to get better with money and maximize the income you work hard to earn, one of the best strategies available is creating a monthly budget. Your budget doesn’t have to be complex, either. Basically, you need to write down your monthly earnings and compare them to your spending. Then, tweak your spending so you have money left over to reach your goals.

5. Build an emergency fund.

Budgets work better when you have an emergency fund in place. Because, without one, any emergency or surprise bill can cause your budget (spending plan) to fall apart.

Most financial experts suggest building an e-fund with at least 3-6 months of expenses. I tell my clients to start smaller (in the $1,000 range), then build it slowly over time.

6. Set savings goals.

With a budget in place, an emergency fund, and a concept of how well you’re doing on the investing side of the equation, setting some savings goals is another smart move. After all, you’ll need cash for more than emergencies.

What about vacations? College tuition for your kids? That new kitchen you always wanted?

With a budget in place, you should be able to start saving slowly for these goals and others.

7. Shop around for loans and insurance products.

While cutting spending is one of the best ways to save money to further your financial goals, it’s possible you could save even more money in other ways – e.g. shopping around for loans and insurance.

If you have high interest credit card debt, for example, you could pay it down faster and save money using a personal loan with a lower interest rate and better terms. Heck, you may even be able to refinance your home loan and get a lower interest rate, a lower monthly payment, or both.

Also make sure you’re shopping around for the best auto insurance and homeowner insurance rates. If you’re willing to switch companies, you could save a lot more than you think without sacrificing your current level of coverage.

8. Meet with a financial advisor.

If you feel like you’re behind and need help planning a savings and retirement strategy you can live with, consider hiring a fee-only financial advisor who is also a fiduciary. A fiduciary is someone who is legally obligated to act in your best interests whether it benefits them or not.

Many times, meeting with a financial advisor allows people to tie all these steps together.

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Jeff Rose is a certified financial planner and CEO of Alliance Wealth Management. He is a nine-year veteran of the Army National Guard, which included a 17-month deployment to Iraq to support Operation Iraqi Freedom. He is the author of the best-selling book, “Soldier of Finance: Take Charge of Your Money and Invest in Your Future” and the founder of the award-winning blog GoodFinancialCents.com and LifeInsurancebyJeff.com. CNBC nominated him to be a part of the Digital Financial Advisor Council and Financial Advisor Magazine pegged him as one the Top 10 Young Advisors to Watch. He currently contributes to Forbes, CNBC, Business Insider and Huffington Post.