7 Smart Ways to Ensure Your Future is Financially Sound

finance is an interesting topic

Finance is an interesting topic. There is much to be learned from reviewing your past, present and future. Our financial goals are personal, but one commonality is our desire to experience financial freedom, but not everyone is willing to do the work to make sure their financial future is secure. It does take some effort on your part but financial freedom is worth it.

Know Your Current Reality

You have to know where you stand today before you can plan for the future. Plain and simple. This step can cause a lot of panic, particularly in those who know they have been living beyond their means. I sympathize but don't skip this step. You need to review your cash inflow and outflow and see where you need to make adjustments. I walk you through how to do this in Your Financial Foundation.

Create a Budget

smart ways to ensure your future is financially soundI happen to love budgets but I know not everyone does.

To help motivate you to create your own and stick with it, I'd like to share a couple thoughts.

First, most people dislike budgets because they consider them too restrictive. I believe the exact opposite. Budgets give me freedom. The freedom to choose how I want to spend my money and to make sure my hard-earned money goes to the things that really matter to me.

Almost everyone has some waste in their budget, I'd rather root it out and direct it towards something I care about.

Second, create a budget that works for you. If you have significant debt, I do recommend that you start tracking every dollar you spend initially, so you can really see where your money goes.

But afterwards, create a budget that keeps you honest but doesn't drive you crazy and make you quit.

Set Goals

I love helping people figure out what they want to do with their money. To see their excitement once they allow themselves to dream and really think about how they want to spend their retirement or the legacy they want to leave behind. Be sure you take the time to figure out what you want (and not what others wants for you) and review those goals frequently.

They may change over time but the need to save for your goals never will. Plus, knowing what you're saving for makes it far easier to actually save your money.

Pay-Off/Avoid Debt

pay off debtIf you have consumer debt, you need to immediately create a plan to eliminate it as quickly as possible. Debt is the killer of your dreams.

There are two ways to eliminate debt: save more and earn more. I recommend doing both. Trim your budget to the absolute necessities and look for ways to earn money from a job promotion, part-time job/side hustle, and selling unwanted things on Craigslist or eBay.

In order to avoid future debt, figure out what caused you to live beyond your means in the first place.

Money is emotional. Anger, envy, stress are just a few reasons why many people have debt. Once you know what emotions trigger you to spend, you can deal with them, rather than grabbing your credit card and going shopping.

Establish an Emergency Fund

One thing I know for sure is that life is uncertain. Things will break. People will lose jobs. Or get sick. An emergency fund can you give you the peace of mind that you are prepared to tackle life's uncertainties without derailing your financial future.

I don't recommend using a credit card as your first line of defense since it creates debt. Understandably, there may be times when you have no choice, but your emergency fund (3-6 months living expenses ideally) should be the first pot you dip into when emergencies arise.

Invest Wisely

Some people are intimidated by investing. They think you need to be rich or a financial expert to become an investor. Neither is true. These false beliefs cause many people to delay investing, which is a mistake.

Time is your best friend when it comes to investing. You do need to educate yourself so you have a baseline understanding of investing, but you don't need to be Warren Buffet either.

The first place most people start investing is through their 401k at work. It's a good place to start as your contributions are drawn automatically from your paycheck (eliminates any chance of you spending the money) and hopefully your company offers a company match. As you become more investor savvy, you can look at additional investment options.

Proper Protection Coverage

life insuranceWe insure our homes and cars. Perhaps our wedding ring or a one-of-a-kind collectible.

Yet, I see so many people gamble with their financial future by not insuring their lives.

Many years ago, I had a client who politely declined life insurance every time I pointed out that it was the one piece missing from his financial plan. One meeting, he finally agreed with me. Not long after his policy went into effect, I received a call from him. He had been diagnosed with cancer and only had a few months to live.

I had the chance to meet with him and his wife one more time before he passed away. Before I could even say anything, he simply said, "Thank you."

He thanked me for not giving up on him and pressing the issue. He thanked me for giving him the peace of mind knowing that his family was going to be taken care of after he was gone.

They could stay in their current home, pay for their daughters' college education and weddings just as they always intended. It isn't always easy confronting our mortality, but I know that if something should ever happen to me or my husband, our family is taken care of and nothing matters more to me than that.


    • Corina Ramos

      Corina Ramos 08/14/2013 8:46 a.m. #

      Hi Shannon,

      These are the things I have in place right now except for investing and we're working on paying off accounts.

      My husband and I had been talking about investing a little chunk of our savings to see what it can do. But when a rep from our credit union called and threw all these options at us we backed off. I got scared. :)

      I really hope folks take time to read your post. It's taken us years to recover from our financial mistakes and I wouldn't wish that experience on anyone. Had we had a plan like the one you shared, we would in a better position. I'm just glad we made it but it did take a lot of commitment and focus.

      Hope you're having a great week ladies!

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/14/2013 11:01 a.m. #

        I would certainly encourage you to sit down with SEVERAL different people and interview them to see which advisor is the best fit for you. Time is your best friend when it comes to investing, but I know it can be intimidating when people are throwing a lot of options at you with little explanation. A good advisor won't throw options at your right away. They should instead ask you a ton of questions so they understand your situation and needs before presenting any type of investment options.

        I'm glad you're taking the steps to secure your family's financial future. It does take time but I know you can do it! Have a great week!

    • Rita P @ Digital Spikes

      Rita P @ Digital Spikes 08/14/2013 10:03 a.m. #

      Very good refresher Shannon.With regards to budget, I agree it is very important to stick with it. When I had a full time job, I never use to follow the budget though it was planned. After quitting job and taking up freelancing, I am able to follow the budget. I am happy for it and it was situation driven in my case.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/14/2013 11:04 a.m. #

        A lot of budgets get started with best intentions, then fall by the wayside. That's why I think it's so important to find one that works for you. Some, like me, are numbers people, so the more details the better! While others want something a little less labor intensive. Whatever keeps you honest is the best kind of budget. I do find that most people get hooked on budgeting when the situation forces them to do so. :) Human nature, i guess!

    • John S @ Frugal Rules

      John S @ Frugal Rules 08/14/2013 10:17 a.m. #

      Great tips Shannon and spot on! While I think all of them are important, I think having goals (and written ones) are so vital. I start with those and build out from there so we can have a plan for how we're going to reach those goals. Of course, that does not guarantee success all the time, but it does give us something quantifiable to measure outcomes against.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/14/2013 11:08 a.m. #

        I agree, John. Goals are so critical. If you don't know what you want and are saving for, it becomes very easy to spend money mindlessly - even if you are staying within your budget. So many people try to set-up savings goal without a real authentic goal attached and then struggle to set aside the money. It's very easy to prioritize a vacation, gadget, or whatnot over an undeclared savings goal. And yes, you are correct - a goal is important but it's equally important to have that plan in place to achieve it. :)

    • debtfreeoneday

      debtfreeoneday 08/14/2013 3:17 p.m. #

      It was only at the beginning of the year when I really opened my eyes surrounding my finances. I now have a budget which I update regularly, an emergency fund and am working on the saving more/earning more thing in order to pay off debt! I have a long way to go, but hope to be financially sound one day.

      • Shannon @ THe Heavy Purse

        Shannon @ THe Heavy Purse 08/15/2013 8:48 a.m. #

        It sounds like you're taking all the right steps! Eliminating your debt will go a long ways towards putting you on sturdier ground. It takes time but you can do it! :D

    • krantcents

      krantcents 08/14/2013 5:37 p.m. #

      Great advice! I make savings a priority and always have. I invest my savings in the stock market.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/15/2013 8:50 a.m. #

        Thanks! Savings was something ingrained in me as a child too, but it seems like it's far less common these days. Getting in the habit early makes it far easier to maintain that savings philosophy as an adult.

    • Marissa @ Thirty Six Months

      Marissa @ Thirty Six Months 08/14/2013 7:47 p.m. #

      Making a budget plan is easy but sticking to it is difficult for most people.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/15/2013 12:39 p.m. #

        It's true that it seems much easier to create a budget than stick to it. :) The most common issues on I see are people making them too complex and confusing so they don't stick with them. Or they cut back too quickly and struggle to meet their budget so they quit. Sometimes you have to go lean and mean immediately but if you have the luxury to make more gradual changes, the better chance you will stick with it.

    • DC @ Young Adult Money

      DC @ Young Adult Money 08/15/2013 5:18 a.m. #

      Wow, that is quite the story about the guy who bought life insurance. An unfortunate situation, but fortunate timing for his purchase.

      I would say that I'm working to pay down debt, build multiple income streams, and tracking my income/spending so that I can make adjustments as needed.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/15/2013 12:42 p.m. #

        Every time I present life insurance I always think of him. We all want to live long lives but we also all know people who did not have that chance. As much as I hope that I am able to live a long life, I want to be prepared in case that is not my destiny. I think tracking spending/income is so important because it's easy to get a bit lax over time. :) This way you stay on top of things.

    • Anthony @ Thrifty Dad

      Anthony @ Thrifty Dad 08/15/2013 7:42 a.m. #

      Great tips Shannon! I think one of the first things we did was set up an emergency fund. And I'm thankful we did that. Although I've never had to dig into my savings yet, I've seen so many people out of work, even at my own job, that have taken them almost a year to find new work. So I think that's essential. I've been investing for a while, but investing 'wisely' came a little late. I made mistakes along the way, but learned a lot from it.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 08/15/2013 12:47 p.m. #

        Emergency funds are so important. I know mine has certainly saved me and definitely helps me sleep at night knowing I have one. I think we have all made one or two investing mistakes in our lifetimes. As long as we learn from them ... right? :)

    • Tara @ Streets Ahead Living

      Tara @ Streets Ahead Living 08/15/2013 7:06 p.m. #

      I can't reiterate the proper protection enough! Make sure you have proper coverage--raise the deductibles if necessary. My sister nearly lost everything in an apartment fire because she didn't have renter's insurance. Even though some of her belongings survived the fire, most were so saturated with the smell of smoke (clothing for instance) that they had to be tossed. I have had renters insurance since then because I feared it could happen to me.

      • Sicorra

        Sicorra 08/18/2013 6:23 p.m. #

        Very sorry to hear about your sister. I can imagine how difficult that would be when you do not have insurance to recover your loss.

        I completely agree with you about proper protection. No matter what our finances have been like we have always carried all the necessary insurance for our belongings, car, life and health insurance.

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