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10 Important Financial Steps Anyone Can Benefit From

young couple working on finances on couch

By Jeff Rose

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

When it comes to our financial health, you may have noticed that our money problems don’t usually solve themselves. If you don’t save for retirement or higher education, it won’t happen on its own. And if you don’t set aside money for emergencies, well, nobody is going to do it for you.

That’s part of the reason I believe everyone should have some sort of financial plan. Your plan doesn’t have to be complex, but it should help you decide on steps to take to avoid financial problems and build a strong financial foundation.

You know what they say – that failing to plan is “planning to fail.” I’ve found this to be painfully true in my career as a financial advisor. Like it or not, the reality is, many people who never plan never reach their financial potential, either.

10 Financial Steps to Take Right Now

While your exact financial plan should depend on your unique situation, including how much you earn, how much debt you have, and what your goals are, there are some money moves that can benefit almost anyone.

If you’re ready to get your finances on track and don’t know where to start, these 10 steps are a good place to start:

1. Build an emergency fund.

According to a 2015 report from The Federal Reserve, 46 percent of adults say they could not cover a $400 emergency expense that year without selling something or borrowing the money. With that statistic in mind, it’s easy to see how so many families get into financial trouble trying to cover surprise expenses.

Obviously, the remedy to this situation is building an emergency fund that will cover unexpected expenses – things like a leaky roof or an unexpected car repair.

While you should hopefully be able to save up 3-6 months of expenses over time, even a small emergency fund of around $1,000 can help you get on solid financial footing.

If you’re unsure of how to start saving for this fund, it’s best to think of this savings as something to accomplish incrementally instead of all at once. If you can set aside $100 per month in a high interest savings account for a year – and keep your hands off it, for example, you’ll ultimately have $1,200 saved, plus the interest.

2. Borrow wisely when you need it.

Another option in times of financial emergencies, is a personal loan – flexible product that gives you access to additional funds fairly quickly. Personal loans can also serve a wide range of purposes such as helping you with home and car repairs, or to pay for a wedding.

It’s important to make sure you have a plan in place before you borrow money. Think long and hard whether you should borrow money in the first place, along with how your life might change as you start paying it back.

Keep in mind, I haven’t always followed this advice. I racked up more than $20,000 in student loan and credit card debt in my early 20s, and I paid lots of interest along the way. Eventually though, I learned that debt – and especially unplanned debt – often stands in the way of your financial goals. Not only do you have to make payments on your debts, but you have to pay interest, too.

To avoid a situation where debt makes life harder, I suggest only borrowing money when it’s necessary and when you have a solid plan to pay it back in a set amount of time.

If you borrow money without a plan, you could live to regret it.

3. Get serious about retirement.

When I started my career as a financial advisor and started to see how I could get compound interest to work in my favor, I decided I wanted to retire at the age of 50. While I’m not entirely sure I’ll ever retire because I love what I do now, I do know that an early and comfortable retirement is possible if you start early and stay focused.

Fortunately, planning for retirement gets easier the earlier you dive in. By beefing up your retirement accounts early, you will be front-loading your retirement investment portfolio. This will not only give you a solid head start, but it will also make it easier to grow wealth through the magic of compound interest.

Also consider branching out from your work-sponsored 401(k). By opening a Roth IRA and maxing it out, for example, you can build up a stash of tax-free money you can rely on in retirement. It doesn’t get any better than that!

4. Create multiple income streams.

While your full-time job can provide financial security, that doesn’t mean you can’t strive to earn more money in other ways. Many people diversify and ultimately become wealthier by building multiple earnings streams that stem from both active work and passive income.

While there’s no “right” or “wrong” way to build multiple streams of income, there are plenty of strategies to try. You can pick up a side hustle like blogging, freelance writing, or tutoring, for example. You could drive for Uber or Lyft, or pick up a part-time job.

You could also start a small business, which a personal loan could also support if you have a solid business plan, or build multiple income streams through investing. The choices is yours, and you don’t have to pick just one strategy. When it comes to building wealth, the more income streams the better.

5. Find a “sweet spot” with insurance.

While building savings is important, so is making sure you’re properly insured. If you don’t have enough insurance and you experience a financial mishap like a house fire, an unexpected death, or a car accident, you can face serious financial hardship.

Where life insurance is concerned, I always tell my clients to purchase inexpensive term coverage in amounts of at least 10X their annual income and potentially more.

To find out how much coverage you need for your auto and home, it helps to sit down with an agent to figure out the best ways to protect yourself and what kind of limits fit your lifestyle and preferred level of risk. Lastly, consider getting a large umbrella policy to cover all the unfortunate events your other insurance policies don’t cover.

6. Live on less than you earn.

The ultimate way to get ahead – and stay ahead – financially is to spend less than you earn. This concept isn’t rocket science, but it has helped people build wealth, or just live comfortably, for hundreds of years. When you spend less than you earn, it’s easier to do some of the other things on this list like buy the right amount of insurance, avoid debt, and build an emergency fund.

If you’re not sure how to spend less than you earn, it can help to start using a monthly budget. Your budget doesn’t have to be complicated, but it should list how much you earn and how much you spend so you can compare every month.

Another strategy that can help you spend less than you earn is making your savings automatic and learning to live on the rest. If you’re able to set up automatic bank transfers to savings or an investment account every month, you’ll be in a great position to learn to get by with whatever is left.

7. Don’t keep up with the Joneses.

This tip ties in with the last one, but it’s still important. To put yourself in the best financial position possible, you have to take a step back and avoid falling into the trap of keeping up with other people. Remember that there will always be those with nicer cars and bigger houses than you. If you try to keep up with them, you will always struggle with debt and never being able to earn enough.

My advice for everyone is to ignore how other people spend their money and keep your eyes on your own goals instead. Not only can this strategy help you stay focused, but it can help you avoid keeping up with lifestyles that aren’t even real.

Here’s the thing: A lot of the “Joneses” out there can’t afford their lifestyles, either. They may have flashy cars and big houses, but that doesn’t mean they can afford them and it sure doesn’t mean they have money in the bank.

Either way, you’ll be a lot better off if you take other’s apparent wealth with a grain of salt and focus on yourself.

8. Be generous with those less fortunate.

While having savings and investments can help you live a more comfortable lifestyle, there’s another, more important reason to work so hard – so you can give back. I truly believe that giving to others less fortunate is one of the biggest benefits of financial freedom.

Not only that, but learning to be generous also gives you control. Letting go of money affirms your power over it – and the fact that it doesn’t have power over you. And while hoarding money is all about security, giving it away helps you celebrate its value.

As an added bonus, I think being generous just feels good. And when you feel good, you’re able to build a happier, more prosperous life for yourself and everyone around you.

9. Find something you’re passionate about.

While money is important and it can buy certain conveniences, it doesn’t have the power to make you happy. That’s why, ultimately, the purpose of building a solid financial present should be to reach a point where you’re financially independent in the future – a point where you can spend your life and your time doing whatever you want.

But, what are you passionate about? And, how would you spend your time if you could spend it doing anything?

These are important questions to answer, and not only so you’ll have a way to fill your time later on. Finding purpose in your life can help you find happiness and give you something to strive for.

Maybe you love taking care of and teaching children, or perhaps you have always wanted to volunteer with animals. Maybe your kids (and future grandkids) will be the reason you get up in the morning, or perhaps you’ll fall in love with travel, reading books, or writing your own.

Whatever you decide to do with your life, the financial steps you take today can help you get to a point where your time is finally your own – and no one else’s.

10. Get your final affairs in order.

Last but not least, it’s important to get your financial affairs in order. This means planning your estate and having a will in place as well.

While you’ll hopefully live forever, life happens and sometimes it isn’t fair. The best step you can take now is to sit down with a lawyer who specializes in wills and estate planning to figure out your plan.

Having all your ducks in a row can ensure your family is protected and help you sleep better at night.

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.