- 30-day Spend Plan Challenge - For 30 days, track every cent that you spend. You can use an app (like Mint.com), an excel sheet, or just a piece of paper. Put some sort of category next to each expense. At the end of the 30 days, review what you spent your money on. 9 times out of 10, people can find ways to cut expenses and save money. The most common expenses we can cut are frequent dining out, ATM fees (even over the $15 reimbursed by USAA), random goodies at gas stations and Wal-Mart, and daily Starbucks runs. This is probably the easiest step since most people don't come back for financial help after this step, and being slightly embarrassed about not knowing where they were spending their money.
- Net Worth Calculation - After that, I typically recommend tracking all your assets and liabilities. As asset is the money you have in savings, investments, cars, and home equity. A liability is your home loan balance, car loan balances, credit card balances, and student loans. Then you take your assets minus your liabilities. For most people, owning a home may put you in a negative net worth situation for many years. Your goal is to increase your net worth every year. You can do this by increasing your assets--saving and investing more--and/or decreasing your liabilities--paying down debt. I recommend calculating your net worth every six months or more frequent (e.g., every month).
- Monthly Expense Calculation - Lastly, I recommend you calculate the monthly average of all your bills. I do this every six months. Often times, our bills will creep up by small amounts and if you're not keeping track, can make you lose a lot of money. I call my service providers (cable, internet, and phone) and ask for reduced prices and/or better service for the same price. After doing this calculation, many people get upset and cut out a whole service altogether.
If you do these 3 steps, you'll be in a good position to figure out where you need to start and put more focus towards achieving financial independence.
