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Are you finally ready to take the reins of your finances? If you've been concerned about your financial health and struggling to figure out the right strategy you've come to the right place!
This personal finance checklist walks you through the basics of building a strong foundation for future wealth. Find out if you’re on the right track to build and retain wealth in your future by checking the six steps below.
- Step 1: Save Strategically
- Step 2: Pay Down High Interest Debt
- Step 3: Invest Wisely
- Step 4: Spend Responsibly
- Step 5: Earn Ambitiously
- Step 6: Protect Meticulously
Step 1. Save Strategically
In this section, we show you how to save strategically by understanding how much money you should put in a savings account, and how to find the best bank for your money.
Saving six months worth of living expenses is critical to your family’s safety – but not everyone can do that.
The key here is to save $2,000 as a starting point and understand that saving isn't going to beat the cost of inflation.
Emergency Fund
No matter how secure your job, how good your health insurance is, or how stable your finances are, crises can still arise. In fact, some say that the only thing constant about life — is change.
That’s why you need to set aside an emergency fund, so you can continue to feed and care for yourself and your loved ones when the unexpected happens.
Whether it’s a job loss, a broken-down car, or a global pandemic, you need an emergency fund to help you survive life’s little (and big) surprises.
We recommend putting all of your extra income toward your savings account until you have $2,000 saved.
Then, you can allocate a portion of your monthly income toward your emergency savings (six months of living expenses) until your full savings account is built.
This means that, until you have a short-term $2,000 emergency savings, you’ll skip the little luxuries like going out to eat, purchasing coffee from Starbucks, or going on that vacation you’ve been dreaming about.
Giving up the extras until your short-term savings is funded is essential for your survival. If your car breaks down or your phone or computer stops working, it could prevent you from earning an income.
These small emergencies, like car maintenance or phone replacements, can hurt you the most because, if you’re not prepared, these “little” emergencies can set you on a downward financial spiral that threatens your home and your health.
Savings Account
Six months of living expenses is a lot of money to save, so you want to make sure you’re saving your money in a bank that offers:
- FDIC insurance
- The highest possible interest rates
- Fee-free savings
Finding a bank that provides you with all three points gives you the best chance of not losing money.
When you put money in the bank, the bank makes a lot of money from your money. It turns around and lends your money to other people, often earning between 4 – 25% interest for themselves.
Yet, banks only pay you about .01% interest on your savings account, despite inflation.
For example, in 2018 – 2019, banks paid an average of 0.9% interest on savings accounts, even though the inflation rate was 1.76%.
That means the money in your savings account would have lost 0.76% that year.
That’s why we recommend opening your account with an online bank, especially CIT Bank.
Because online banks are disrupting the industry with higher interest rates than brick-and-mortar institutions can offer because they operate with dramatically-lower overhead.
By moving your money to CIT Bank, you can get a much better interest rate without paying any monthly maintenance fees.
Step 2. Pay Off High Interest Debt
As of 2021, the average US household holds $155,622 in debt. Paying off high-interest debt is crucial to getting your personal finances in check.
You don’t have to sacrifice investing to pay off debts. It can be beneficial to work toward both goals simultaneously, but there are some important things to consider when it comes to paying off your debt.
Interest Rate
The first and most important thing to consider here is the interest rate on the debt you have.
Credit cards typically have the highest interest rates as opposed to the low rates typical on mortgages and other types of debt.
If your average APR on your credit card or other debt is higher than the average return of your investment, then it is best to pay off that debt before you start to investigate investments.
Credit Utilization
Most lenders refer to your FICO credit score when deciding whether to issue you a new loan or credit card.
This score consists of five main areas: payment history, credit utilization, length of credit history, new credit lines, and credit mixture.
For our purposes, the important factor here is your credit utilization.
Your credit score is likely to be lower when your credit utilization is higher. Most lenders prefer to see a credit utilization rate that hovers right around 30 percent.
Time Left Until Retirement
If you are close to retirement, you should consider aggressively paying down debt. Carrying your debt into retirement can spell trouble for your financial health when you are typically on a reduced or fixed income.
Most experts recommend paying down high-interest debt before making huge investment decisions.
The exception to this is saving for retirement. Consider contributing even a small amount to your retirement fund each month.
It will earn interest and compound year after year, yielding large dividends for you later in life.
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Step 3. Invest Wisely
Since there are only 24 hours in a day, the amount of time you spend making money is limited if you’re only getting paid during working hours.
With investments, you’re not limited to earning whatever salary or hourly pay your company thinks you’re worth. Instead, your investments work for you.
When you invest, your money can earn money. By reinvesting the profits from your investments, you can begin to build wealth.
Stock Market
Stock market investing offers a few advantages:
- Easy start: Stock market investing is an easy way to begin investing.
- Liquidity: You can cash out your stocks at any time and receive immediate payment.
- Hands-off investing: You can invest in ways that don’t require your time or physical presence.
- Some tax breaks: Your stock market investments do offer some limited tax breaks.
The disadvantage of stock market investing is that you have no control over your investments.
If your stocks take a plunge, no amount of hard work or research can fix it. You can only choose your investments wisely and hope they do well.
If you enjoy buying and selling stocks, though, you can become more involved in the outcome of your investment by actively buying and selling stocks through platforms like Webull.
But if you’d rather invest your money on “autopilot,” — that’s called passive investing.
In addition to freeing up your time for more investing (or other things), passive investing prevents you from allowing your emotions to take control of your trading.
To get started with passive investing, we recommend checking out M1 Finance. The best part of M1 Finance is that it lets you purchase fractional shares.
Real Estate Investing
Real estate is another excellent way to get your money make more money for you.
Although, real estate takes a bit of hands-on work such as purchasing properties, ordering inspections, and hiring and supervising contractors for upgrades or maintenance.
Plus, you have to screen tenants and manage any problems and maintenance issues along the way.
Fortunately, you can hire a property manager to take over a lot of that work for you, so you can do other things like find new properties or investments.
The best part about owning real estate is that you get a sizable, steady income stream flowing in every month.
And the tax breaks. Real estate investing gives you some of the best tax breaks our entire tax code has to offer.
The most challenging part of investing in real estate is getting started. You need to access quite a bit of capital to get started, but fortunately, there are companies like Fundrise that can help you with that.
Fundrise is the first company to successfully crowdfund real estate investments. You can build a portfolio of real estate investments with very little money—with a typical return of 8.7 – 12.4%.
We recommend Fundrise for people who want to start investing and gain exposure to the real estate market without having to come up with a large amount of capital.
Cryptocurrency Investing
Cryptocurrency has no doubt become a popular form of investment as many coins have become mainstream.
You can invest in cryptocurrencies by signing up with any exchange that allows you to purchase them with a debit card, credit card, or bank transfer.
We recommend using the Coinbase platform, especially if you’re a beginner at cryptocurrency.
Coinbase is a US-based, secure platform that people use to buy, sell, store, and manage all types of cryptocurrency, and it complies with all applicable laws and regulations.
Most of all, we like it because it makes cryptocurrency fun and super-easy to get started.
Step 4. Spend Responsibly
Can you afford it?
We’ll tell you how to decide what you can afford, and show you how credit cards can help—not hurt—your finances.
No matter how much money you earn or how much wealth you build, you can still overspend and end up broke if you’re not careful with your money.
For example, lottery winners are more likely than most Americans to declare bankruptcy, and they usually do it within 3-5 years of winning.
Alex Toth, a 1990 lottery winner of $13 million, opted for a 20-year payment plan that paid him over $650,000 annually.
He managed to go broke anyway, by living an overindulgent lifestyle. By 2008, at the age of 60, Toth died penniless.
Single mom Lisa Arcand won $1 million in April 2004. Lisa bought a restaurant and burned through the rest of her winnings by purchasing things she couldn’t afford – like a house, furniture, and vacations.
Within four years of winning the lottery, Lisa was broke and back in debt.
Think it’s the sudden windfall that makes people go broke? Probably not.
Evidence shows that people who make it into the top 1% of earners often don’t stay there long. This is why learning how to spend money now, before you’re wealthy, is critical to your long-term success.
Money Management Skills
By learning good money management skills now, you can significantly increase your chances of building—and retaining—wealth in the future.
Smart spending is simple! Don’t buy what you can’t afford.
- If you have to use a credit card to purchase something, you can’t afford it.
- If you have to take out a loan to buy something, you can’t afford it.
- If you need financing to make a purchase, you can’t afford it.
Don’t get trapped into thinking that your credit card limit or bank line of credit is part of your spending, or even emergency budget!
Financing comes with outrageous interest fees that are designed to keep you broke – and dependent on the banks that profit from them.
Follow The Rule of 5—if you can’t buy five of them, you can’t afford it.
Refinance Your Loans
Consider refinancing if you’re carrying a lot of high-interest debt.
By only refinancing for what you owe, and then making higher-than the required payments, you can burn through your debt quicker and pay it off for less.
If you have student loans, we recommend you consider refinancing with Credible.
If you have a mortgage, we recommend you to shop around to see how much money you could save by refinancing your mortgage.
Credible is a free and trusted service that can provide you with a list of up to ten lenders, so you can compare rates. It only takes a few moments to get a list of vetted lenders, and it doesn’t hurt your credit score to apply.
- See how much money you can save on your student loans with a free quote
- See how much money you can save by refinancing your mortgage
- See how much money you can save on your new mortgage in minutes
Smart Credit Card Usage
Credit cards don't destroy people. Poor spending habits destroy people. Taking out credit cards before you’ve developed good spending habits isn’t a good idea.
If you have good financial habits, though, credit cards can off you three advantages:
- Cashback rewards
- Perks such as airfare and hotels
- Purchase protection
If you’ve developed good spending habits, and you’re able to live within your means, then consider using a credit card for your purchases instead of a debit card or cash.
Here are 3 simple steps to using credit cards responsibly:
- Treat your credit card like a debit card and only make purchases you would normally make.
- Pay off your credit card entirely at the end of each month.
- Use a credit card that offers you rewards, and make all your purchases with it – instead of using cash or a debit card.
Wondering what credit cards give you the best perks? Check out the following Minority Mindset-approved credit cards:
Step 5. Earn Ambitiously
In this section, we share some quick tips and ideas on how you can earn money to fuel your savings and investment strategies.
Need to pull yourself out of debt or make a few extra dollars to pump up your savings account? Or, perhaps it’s been waaaay too long since you’ve taken a vacation?
When you need extra money, there are hundreds of ways to do it that don’t involve scamming your friends, jumping into the latest pyramid scheme, or doing anything you might regret later.
Some side hustles you can pick up to earn extra money:
- Start an online business
- Work as a freelancer
- Hack your house
It’s essential to live below your means, but you also need to know how to expand your means if you’re not making enough money to get ahead. Here are some red flags that are telling you to boost your income:
- Can’t put a portion of your income toward investing?
- Still working toward building a savings of six months’ living expenses?
- Can’t get your debt paid off?
Minority Mindset thinkers don’t sit around waiting for life to get better. Instead, they MIH (Make It Happen)!
Fuel your income and wealth-building by earning more money—instead of waiting around, hoping for a raise, or desperately grabbing any chance for overtime hours.
Step 6. Protect Your Wealth Meticulously
Don’t leave your hard-earned money unprotected! Find out how to keep your assets safe and protected. Now, how will you protect everything you’ve worked for? There are three basic ways to protect your assets:
- Get a will. A will is how you tell the world how you want your assets divided after you die. If you don’t have a will, you’re agreeing to let the government decide. Get a will!
- Retain an attorney to protect your wealth. Paying an attorney to review your business and financial transactions can save you a fortune in the long run. Investing in a good attorney, and allowing them to review all your transactions, is essential to protecting your assets.
- Get life insurance. Life insurance is a critical risk management strategy that protects your most valuable assets — the people you care about. We recommend purchasing term life insurance for an amount equal to 10x your salary. You can use Policygenius to gather and compare life insurance quotes.
Use This Checklist To Guide Your Personal Financial Health
When you complete all 6 steps in this personal finance checklist, you’ll be on your way to building a wealthy and rewarding future for yourself and your loved ones.
It’s all about settling your debts, finding the right balance between spending, saving and investing. Start to earn more than an hourly wage. Be proactive!
*CIT Bank is FDIC Insured. Conditions Apply
*Advertisement from Credible Operations, Inc. NMLS 1681276, not available in all states. Click here for important information about Credible’s licenses. Address: 320 Blackwell St. Ste 200, Durham, NC, 27701.
