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FIRST STEPS FOR FINANCIAL SUCCESS

No matter what we accomplish in life, we will feel a much greater sense of “joy” through adopting wise financial practices. Getting one’s finances on‐track will not happen overnight. There must be a process for getting your financial practices in order to avoid being “overwhelmed.”

For the best opportunity for success, we recommend a series of steps to prioritize the process and get you started - regardless of where you currently stand. On your Staircase to Financial Success we believe the following steps will help you address the long‐term challenge of getting your financial practices working for (rather than against) you. Just remember it is possible to “eat an elephant” if we just do it “one bite at a time!"

The following “steps” represent a recommended process to work through with cash you already have available monthly or extra money gained from the sale of unwanted items, gifts, etc. We do not recommend anyone cash in retirement pretax savings early to get out of debt or to use in this process as the penalties and taxes are terrible. However, if necessary you could temporarily stop adding to retirement plans or investments until you reach the first Emergency Fund stage (but be careful to use these funds one hundred percent for this purpose and then restart retirement savings immediately).

A budget is important as you start: You will want to develop a budget during the beginning of this process, where your expenses are able to be summarized. Whether a paper budget or an electronic budget, monitoring your spending is necessary for managing your finances.

Stage One: Emergency Savings Fund
The first step is to develop an emergency savings fund of $1,000, even if you must pay only the minimum on all bills. The most ideal option is to get this money in the first month of your plan. This savings is the first level of the emergency fund to protect you from small emergencies. If your income is very low you may settle for $500, or if your household income is over $50,000 you might want to choose $2,000. Please remember, this first level fund is only for emergencies (so remember there is no such thing as a Need a Vacation Emergency!).


Stage Two: Creating a Debt Snowball
With your Emergency Savings Fund in place, you want to next begin to pay‐off debts, except your home, starting with your credit cards (and most specifically your “high cost” credit cards).

Like many of the steps, we recommend using the Dave Ramsey process of the Debt Snowball. Through the use of the Debt Snowball approach you work to pay off your smallest balance “first” and then use that money to pay off the next smallest balance, and continue the process of reducing and eliminating accounts one‐by‐one.

This step can easily take months (to over a year), so don’t get discouraged. Your budget to track your outstanding debts is helping you to “track” the declining nature of your outstanding credit card balances. Remember in this step you want to get serious (and remain serious) until you get your debts declining. Get angry at those high cost credit card companies that lured you with their “easy money” marketing, there is energy in emotion.


Stage Three: Three to Six Months of Accessible Emergency Savings
At this point, the only debts you have are your home and perhaps a vehicle loan. So now it should be easy to save for the rest of your emergency fund. The correct amount is three to six months of your expenses (not your income). Keep this money in a simple money market account at your credit union or bank. Do not invest this money – it is your financial “insurance policy” and should only be used in the event of an emergency.

At this stage you should also evaluate your Blanket Liability and other insurances to make sure you have enough coverage of all types. By having an emergency fund in place, it is also easy to have $500 or $1,000 deductibles, which will drastically lower your premiums.


Stage Four: Invest 15% of Household Income for Retirement
At this stage, we recommend you save 15% of your gross household income in retirement plans. You should begin with 401(k) or 403(b) retirement savings. You want to secure your employer match as this is literally “free money.” Consider investing in ways to outpace inflation. If you are not familiar or comfortable selecting among the investment choices in your plan, seek help. After contributing enough to capture your full employer match you may want to contribute the rest of your retirement savings to ROTH IRAs (set up these deposits as automatic drafts). If your 401(k) or 403(b) doesn’t offer an employer match then you may consider beginning with ROTH IRAs.


Stage Five: College Funding
Although some may differ with the order of steps they propose, we suggest college funding for your child’s education not start until AFTER you are already saving 15% of household income for retirement. There are far too many people who are unprepared for their retirement not to recommend each person make retirement a priority and utilize the benefits of the Time Value of Money for their retirement. Additionally there are many opportunities for students to fund their college education through grants, scholarships, co‐ops and even student loans. We know people feel bad because the college fund isn’t there but the only way to build a strong house is to lay the proper foundation first.

Calculators & Additional Resources
- Visit PalmettoCitizens.org for a quick refresher on managing your checking account. While you are there you can find links to all our financial calculators and tools to help you better manage your money.

- Use the checking account reconciliation form to help you balance your checking account.

- Working on paying off your debts with the debt snowball? You can use the Accelerated Debt Payoff Calculator to get you started and see how long it will take to be debt free.

- This tool will help you decide if you are saving enough each month with the How Much Should I Save for College Calculator.

- See how long it will take you to achieve your savings goal with the Savings Goal Calculator.

- Unsure how much you should be saving for retirement? Check out the Retirement Savings Calculator. 

MoneyWACH is a partnership between Palmetto Citizens Federal Credit Union and WACH FOX focused on financial education in the Midlands. Over the course of the year we'll cover financial and economic topics that matter to you. The segment airs the first Monday of every month on Good Day Columbia and will also be archived here for your convenience. Achieve your potential with Palmetto Citizens Federal Credit Union and WACH FOX.