7 Simple Steps to Get Your Financial Train Wreck Back on Track

These 7 simple steps will show you how to ditch bad money habits, dig out of debt and get you headed in the direction of a future free of financial stress. Ok, so your finances are a train wreck, you’ve got yourself into excessive debt, your credit score has dive bombed and you have zero savings.

Dig In and Assess Your Finances & Net Worth
Create a Budget
Dig Out of Debt
Build an Emergency Fund
Invest for the Future, Automatically
Build your Freedom Fund
Monitor and Adjust Regularly

Let’s be honest, you’re one medical bill away from disaster and it’s time to gain the clarity, confidence and control you need to get your finances, and your life back on track. Even if you’re not in dire straights today, these tips will certainly improve your finances and your future.

Getting your finances on track involves a systematic approach to managing your money, setting financial goals, and making informed decisions. Remember that getting your finances on track is a journey, and it requires discipline and consistency. Building good financial habits and making informed choices will lead to long-term financial stability, less stress and more happiness.

1. Digging In: Assess your Current Finances

Often times the hardest step is acknowledging the issue and being brave enough to face it. Thousands of people spend too long in denial, ignoring their finances, hoping they’ll magically improve. They have no idea how much their monthly expenses are or how much debt they are in.

46% of student loan holders have no idea how much debt they owe.
65% of Americans have No Idea How Much They Spent Last Month
34% of Americans have no idea how much of their income goes to paying their debt.

But hope is not a strategy, and the “lalala I’m not listening” strategy is not effective in money matters. So congrats on taking the important first step!

You can’t manage what you don’t measure. If you have no idea how much you spend, what interest rates you’re paying or how long it will take to pay off debt then you don’t realize how debt is preventing you from reaching financial goals, such as buying a home or early retirement. If you don’t take the time to figure out how much you earn, spend and owe, you can’t make a plan to to achieve financial freedom.

Determine your Net Worth

Remember, self-worth is NOT determined by your Net Worth, so go easy on yourself if your number isn’t what you’d hoped. This is just a snapshot of your financial health and your starting point – you’re on the road to improve it.

To calculate your net worth, you subtract your total liabilities from your total assets.

Total assets will include your investments, savings, cash deposits, and the value of your home, personal items and car. A Zillow estimate will do for your home value, or you can call a realtor friend. For your car, use Kelly Blue Book.
Total liabilities would include any debt, such as student loans, credit card debt, car loans and mortgages. You’ll want to be precise on these ones, so reference your most recent statement and note the balance and the APR, the latter of which we’ll use later.

Negative net worth is a sign that you need to focus energy on debt reduction. Positive net worth means you’re doing some things right, and may be on track depending on your age, and number of years to retirement.

2. Make a Budget to Promote Savings

Begin by taking a comprehensive look at your monthly finances. List your income sources (after taxes) and all your monthly expenses including debts
Categorize your expenses into essential (e.g., housing, utilities, groceries) and discretionary (e.g., entertainment, dining out) to identify areas where you can cut back if needed.
I am a big fan of a zero sum budget, meaning I have included my savings goals into expenses, and aim to net out at zero, when subtracting expenses from income.
If you choose not to use a zero sum budget, you’ll need to ensure your budget allows for enough monthly cash flow to align with your savings goals
Try this free template to get your started quickly. You can customize it along the way if you need to.

I can already hear some of you, “budgeting is boring”, “I hate tedious tracking”. But here are 2 truth bombs:

The REAL reason most people hate budgeting is they’re in denial and don’t want to be held accountable for their financial mistakes and mess
You only need to do a budget initially. Once you get the hang of it, the tracking will lesson

Knowledge is power and once you know what money is coming in and where it’s going, you have clarity, a key ingredient to financial freedom.

I have tracked all my expenses monthly using a simple excel sheet. Yes, there are a number of budgeting apps for the tech savvy. But personally, the ones I tried required so much manually adjusting it didn’t make the time or money worthwhile. If you choose to use a budgeting app, it can import your transactions, for you to categorize and you’ll end up with a detailed budget that includes all of your expenses and sources of income. Review this budget regularly so you can adjust when necessary. Regularly tracking your spending also helps ensure that you’re staying within your means and not overspending.

Analyze your Budget

If your Zero Sum budget is showing less than Zero then you need to explore boosting your income, or reducing your expenses, or both. But first, make sure you’re taking advantage of free money if you qualify!

Enjoy FREE Money – Take advantage of employer match programs

If offered by your employer, you MUST sign up for the employer match program of your retirement plan like a 401(k), 403(b), or Simple IRA. If the company will match a portion of the money you put away into savings each month — often as much as 50%. That’s free money just waiting for you, so don’t leave it on the table! Ensure you’re putting the maximum amount in that they match, e.g. if they match up to 5%, then be sure to put 5% in. I promise you, you won’t miss it. I also promise you, if you don’t put it in you’ll spend it and likely have no idea where it went.

I can’t stress the importance of this enough. If you stop reading right now, and at least walk away with this one lesson you’ve won and I’m thrilled – Get your FULL company match.

Let’s use an example – if you earn $50,000 per year. Your employer offers you a dollar-for-dollar company match, up to a 5% maximum, on 401k contributions. If you contribute $2,500 (5%) into a company 401k, your employer will ALSO contribute another $2,500.

You’ll then have $5,000 in your 401(k)
and only $2,500 came from you!

Some employers may only match 50 cents for every dollar you contribute – or $1,250 for your $2,500, but hey, it’s still FREE money, guaranteed. Not a word you hear much in investing.

Set Clear And Measurable Goals

Do you need to increase income, decrease spending, or a bit of both to get back on track? First, decide what options are realistic, then write down your goals and when you plan to achieve them.

Research conducted by Dr. Gail Matthews, a psychology professor at Dominican University in California, concluded that you are 42% more likely to achieve your goals just by writing them down. Make plans for how to pay down your debt, by what date and where the money will come from each month. Determine if you’ll need extra income and if so, how much per month.

boost income

According to a recent Transamerica survey, more than half of Americans (51%) say they do not have enough money to save for their retirement. If this sounds like you, it’s time to boost your income. The easiest ways to earn some extra cash are online shopping sites like Rakuten.

I‘ve earned $397 over the last couple of years by doing NOTHING other than taking 5 minutes to load the extension on my browser. Rakuten automatically rebates me when I shop online. There are also a number of online survey companies that pay you take online surveys if your time allows.

Look for other creative ways to boost your income that match your skill set and availability. You might try freelance writing, developing websites, or teaching classes online or through local institutions.

Saving for retirement doesn’t need to be an impossible task — even if money is tight right now. Start small by understanding where every dollar goes each month and cutting back on unnecessary expenses, taking advantage of employer match programs, and more. With these simple tips, anyone can start building a nest egg for a happy retirement — no matter your current financial situation.

Curb Unconscious Expenses and Spending

The smallest expenses can add up quickly if left unchecked. Cut down on frivolous expenses, like daily coffee shops, bottled water, and buying clothes you don’t need and go from the store to your closet to the landfill. Auto subscriptions are also a budget killer. Check your phone and bank accounts to find these often hidden subscriptions. Streaming services, magazines, for-fee phone apps may seem insignificant at first glance, but they really add up over time.

Switch to Low or No Fee Bank Accounts

Check your statements and see how many fees you’re paying to lend your money to the banks. Minimum balance fees, maintenance fees, paper statement fees, savings withdrawal fees, out-of-network ATM fees, and overdraft and non-sufficient funds can add up over time and take a huge chunk of your savings. Capital One 360 is a highly rated, no-fee account. Check out your local credit unions (offer financial products like banks but unlike banks, are not-for-profit and distribute their profits among their members) for low and no fee products.

3. Dig out of Debt

In the same Transamerica survey,

over half of workers (53%) agree with the statement,

“Debt is interfering with my ability to save for retirement”

No matter your income or expense management, you won’t be financially stable until you get serious about digging out of debt. I managed credit card businesses for over 15 years and I have know the system is designed to keep you in debt. You’ll die before you pay off your cards using the minimum payment method and your interest rate is likely north of 20%, and 3x the rate you pay on your mortgage. Media has convinced you things buy happiness. The happiness is fleeting, but the bills last a lifetime.

Depending on how deep your debt hole is, you may need to start by negotiating with creditors for payment plans. You’ll also need to pick a debt reduction plan to start climbing out of the hole you’ve dug. The two most common are the the debt snowball and debt avalanche. With the avalanche, you tackle debt with highest interest rate first vs the snowball you tackle lowest balance first.

I personally recommend the debt avalanche as it makes the most sense from a numbers perspective and you’ll pay down your debt faster. However, its true that our money mindset has a role to play in how we manage our finances. If you’re the kind of person that needs to build a bit of momentum in order to inspire you to stick to the plan, then by all means try to snowball method. As long as you’re digging out from under your debt, it’s a good thing.

Recap: to Reduce and Manage Debt:

If you have high-interest debt (e.g., credit card debt), prioritize paying it down aggressively.
Consider debt consolidation or refinancing options to lower interest rates.
Create a debt repayment plan that includes making consistent payments, preferably starting with the debt with the highest interest rate (the debt avalanche method).

4. Build an Emergency Fund:

So you’ve just dug yourself out of debt – nice work! Now it’s time to set up an emergency fund so you don’t find yourself right back in the hole. Being laid off, unexpected hospital bills, car or home repairs can cause you to turn to credit cards, which you’ll want to avoid.

Aim to have at least three month’s worth of living expenses saved in an easily accessible account. This fund acts as a financial safety net in case of unexpected expenses or emergencies.
It doesn’t need to cover 3 month’s salary, just enough living expenses to get by
Start small if necessary, and gradually increase your emergency fund contributions until you reach your target.

5. Invest for the Future:

According to a recent Transamerica survey, more than half of Americans (51%) say they do not have enough money to save for retirement. As a result, 40% Americans surveyed say they will continue working until at least age 70 and 57% state that they still plan on working after they “retire”. Nearly 80% of those surveyed believe working through old age will be the only way to make ends meet.

Invest now so you can enjoy retirement. How you invest for long-term wealth building will depend on your financial goals and risk tolerance. Consider this simplified approach.

Target-date funds provide easy-to-understand options that work reasonably well for most investors. With target-date funds, all investors need to know is when they want to retire!

Take advantage of tax-advantaged accounts, such as your 401(k), IRA and HSA, that allow you to contribute pre-tax dollars, reducing your tax burden.
You need to diversify your investments to spread risk and aim for a mix of assets (e.g., stocks, bonds, real estate) that align with your risk tolerance and time horizon.
Investing is NOT about picking individual stocks. That’s for day traders, looking for short term gain
Invest in low-fee target date index funds. Vanguard invented them and is a well regarded brokerage. As are Schwab and Fidelity. These are my 3 favorites. Typical fees are a fraction of a percent.
- Index funds track the overall broad market, which means they’re designed to create results that are as good as the overall market — they don’t try to beat it.
- Avoid paying advisor fees. A seemingly low 1% fee to your advisor can cost you hundred of thousands in the long run!

Advisors will claim to beat the market, but fewer than 10% of active fund managers consistently beat the market.!
Advisors actively managing portfolios usually underperform the market, and still charge 1-2% in fees!

Once you open the accounts at the brokerage you MUST then fund the account by picking the actual fund to invest your money in. (Yes, I made this mistake with my first account, forgetting to fund it, so it was basically acting like a low interest savings account!)
- Target date index funds help take the guesswork out of saving for retirement because they provide you with a diversified mix of stocks (also called equities) and bonds that changes over time. For many, as they get closer to retirement age, they choose to reduce risk and increase the percentage invested in bonds, and decrease the amount in stocks. This is because the stock market will have more ups and downs, and they’ll have less years to make up for any downturns.
- Super simple – just pick your planned retirement date and the fund will adjust for risk as time passes. I have invested in a 2030 Vanguard Target Date Fund, that will decrease the allocation in stocks as we get closer to 2030.
Keep investing regularly with every paycheck, regardless of whether the market is up or down.
- Set up automatic contributions from each paycheck into a 401(k) plan or IRA Account so that money is taken out before it has time to get spent elsewhere — this makes it easier to stay disciplined about saving. Automating contributions also ensures you won’t miss any deadlines and if the funds go straight to your account, you won’t be tempted to spend it.
Don’t monitor the market portfolio progress, don’t sell when its high, or worse, when its low. Remember wealth comes from uninterrupted compound interest. Stay the course.

Historically, over the last 100 years, the average yearly return of the S&P 500 is about 10.5% .
Advisors actively managing portfolios usually underperform the market, and still charge 1-2% in fees!

6. Automate Savings in Your “Freedom Fund”

By now your net worth is tilting in the right direction as you ditch your debt and kick start your retirement savings. This is the time to start saving for what I call your Freedom Fund. I call it that because in reality your’e not saving for a home or a holiday, you’re actually saving for the freedom to choose what you want to do. Money buys you time and time buys you freedom.

Here are how some of my readers define freedom:

Freedom to save for your future dream wedding, even if you’re single
Freedom to buy a home in our current neighborhood, where we love our kid’s school. We don’t have to rent any longer and worry about when or if our landlord is going to terminate our lease
Freedom to take time to figure out what my next career move is after being laid off – not having to take a job I don’t want because I have to pay the bills
Freedom to take an extended family holiday because you’ve realized once they are school age, you only have 2,160 days to spend with them until they’re 18

Figure out what does freedom looks like to you. Then find a high interest savings account and set up regular deposits. Online accounts, like Citizens and Barclays, will offer the highest interest rates, much, much higher than any brick-and-mortar bank.

Still Have A Little Extra to Stash Away?

If you’re in the groove now and have ditched debt and built your Freedom Fund, and still have some left over, here are some ideas.

If you receive unexpected additional income, such as tax refunds or a bonus from work, put it directly into your retirement account rather than spending it
Put extra income toward retirement savings, increasing your savings rate to 15%
Make additional payments to your mortgage to save thousands and pay off sooner

What happens if I pay an extra $200 a month on my 30-year mortgage?

If you buy a $300,000 house with a 30-year mortgage and a 5.7% interest rate, you could save $84,223 in interest by paying an extra $200 every month — and pay off your mortgage 6.7 years sooner!

7. Monitor and Adjust Regularly

Regularly review your budget, expenses, and progress toward your financial goals. Make adjustments as needed to stay on track.
Stay informed about changes in your financial situation and adapt your strategies accordingly. Life events, income changes, and shifting priorities may require updates to your financial plan.

Live Richly. Find Happy.

You’ve Built A Strong Financial Foundation – now what?

Congrats! You’ve made it to Milestone 3: Execute Your Financial Plan You’ve taken the foundational steps of budgeting, saving and investing and can now watch your money grow!

Now, learn more about the other 5 milestones on your journey to living richly!

Milestone 1 – Envision the life you want to live. Define what living richly means to you.

Milestone 2: Educate Yourself. Learn the basics of personal finance and identify the roadblocks that are holding you back!

Milestone 3: Execute. Create a budget, plan to reduce debt, and set up automatic saving & investing plans

Milestone 4: Enough. Determine how much is enough. Enough time to spend working, enough money to provide happiness. What is the true value of money to you and how much of your life are you willing to trade for it?

Milestone 5: Evolve. Monitor your progress and learn from your experiences. Adjust and adapt your financial plan to accommodate learnings and changing life stages.

Milestone 6: Elevate Your Finances – You have achieved a solid foundation – free from financial stress allowing you to focus on Living Richly. Learn how to celebrate your success without getting off track.Financial management in an ongoing journey more than a finite destination. How to put your new found knowledge and experience to work to further elevate your finances, pursue new goals, and contribute to your long-term happiness.