7 Step Guide to Building Your Financial Base

By | 2016-09-07

Before you can look to far into your financial future you need to make sure yo are setting it up on a solid Financial Base. You wouldn’t let a Faberge Egg roll around on the counter top, or set a delicious craft beer on a wobbly table? Treat your Financial Independence the same way, and build a sturdy Financial Base.

I was looking back through my posts to date, while there is a ton of great information (unbiased opinion) there was not a step by step process connecting my thoughts. This post is going to connect a few other topics I have written and put them in a sequential order.

7 Steps to Building your Financial Base

1. Asses the current situation

If you have ignored your financial position to date, you don’t know what your current situation is. Areas to focus on:

  • Debt – Put together a list of all your debts with the interest rates and balances
  • Savings/Investing – How much are you saving and investing every paycheck or month? Is the amount auto-transferred?
  • Account Organization – Put together a list of all our accounts and any service that has access to your bank accounts via a direct payment.
  • Insurance – List out all the different types of insurance you have (health, dental, life, etc). Figure out the out of pocket maximums and how to contact the company if needed.

Everything you put together in this step will help you complete the other ones. Find a storage system that works for you, personally I recommend a spreadsheet.

2. Quick Wins

This section could be titled “Stop the Bleeding” because you are going to halt a few money mistakes in a short amount of time.

  • Set up auto transfers to savings/investing accounts – Even if its just a $5 transfer to your emergency fund, savings account, Roth IRA or Brokerage account. Get it setup, we will focus on building this out later.
  • Common Money Mistakes you Can Correct in an Hour – I wrote this post last month and it fits in nicely here. Lots of Quick Wins that you can knock out in a week.

3. Conduct a Spending Review

If you don’t currently budget, or track your spending on a monthly basis you will be surprised where some of your money goes. I still find lines on our credit card bill that surprise me after 5 months of tracking and surveying out spending.

Since we do not use a budget, I go through our credit card line by line to see where our money is going. Earmark anything that you could live without, we will revisit in step six.

You can use a tool like Personal Capital to help track your spending as well.

4. Income

Income is a huge driver of your savings rate. If you save at least 50% of your raises you can shorten the F.I. path drastically. The biggest question here is “Are you being compensated fairly?”

Maybe it has been a few years since you got a raise or you have taken on some additional responsibility without being compensated. Be objective, but don’t undersell yourself either.

You can also use free sites like GlassDoor.com to compare your salary to others in your area. It is not 100% accurate, but should get you in the ballpark.

If you want some tips preparing for a conversation with your boss, check out An Honest Conversation About Salary Expectations.

5. Emergency Fund and Plan

All of the information you gathered in step one will be helpful here. I recommend having an Emergency Fund and an Emergency Plan. The Emergency Fund has cash to cover expenses while the plan is a guide on actions you can take to reduce and organize your expenses for a prolonged emergency.

Few options to funding your emergency fund:

  • Prioritize over Debt/Investing – If you at a higher risk for a prolonged financial emergency, I would take this approach.
  • Build Up Over Time – If you are in good health and have a stable job you can take more time to build up your fund while simultaneously investing. Just remember, no one sees an Emergency coming, so don’t completely put the fund off.

You will use a lot of the information from step one to build your Financial Emergency Plan.

6. Set Goals

This is my favorite step to building a Financial Base because it holds you accountable and gets you emotionally invested. I have done this for 2015 and 2016 and it has changed our habits dramatically. The biggest benefit is halting lifestyle inflation as our income rose. We put the money towards meeting our financial goals instead of frivolous  spending.

Goals you should consider:

  • Emergency Fund – Figure out how much you need and set a goal on how long it will take to fully fund it.
  • Reduce Spending – Remember your earmarks from step 3? Set goals to reduce spending in areas you identified as unnecessary or excessive.
  • Investment Accounts – Depending on your current situation, this could be increasing your 401K contribution or starting a Roth IRA.
  • Debt Payoff – Set a specific debt payoff goal for the next year, maybe it is paying off your credit card, an extra mortgage payment or simply increasing your student loan payment every month.

Make sure to write them down and hold yourself accountable. We check in every quarter to see how our yearly goals are tracking and mark which ones are completed. Checking them off every quarter boosts your motivation and helps with the next step!

You can read this post for more information on Investing vs Paying off Debt.

7. Burn in the Habits

Consistency is ket to building a base that can hold up Financial Independence. Here is my equation to burning in a habit:

Small Changes + Time + Accountability (Goals) = Long Term Habit

Stay away from the big bang approach, the habit wont stick. It has taken us a few years to change our financial habits and it is still a work in progress. A few examples:

  • It has taken us 2.5 years to get our 401K Contributions to 11 and 13%. The first year our goal was to increase them by 1% each quarter
  • I have increased our Roth IRA contributions by as small as $5 a paycheck multiple times (now over $100 goes to each of our Roth IRAs every paycheck)
  • After our first spending review, our goal was to cut out $15 on average every week for a month

Take Aways:

Use your success as motivation to set bigger and bigger goals, I can’t stress enough how important this is. As you stack up accomplishments you will be come more motivated and find ways to earn, save and invest more.

I will do another post putting more advanced topics in sequential order – thanks for reading!


Some products that can help you:

Disclosure Policy

Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time!

Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They are great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.

23 thoughts on “7 Step Guide to Building Your Financial Base

  1. Latoya @ Life and a Budget

    Great post! One area that I could stand a little work in is the income area. I know I’m underpaid, but just not quite sure by how much. I’ll look into Glass Door to see what I can come up with.

    1. Apathy Ends Post author

      Glass door was very accurate for my job title and location, not sure if that is the norm but its definetely worth a look.

  2. Ms. Montana

    I started working on these things in high school, and 15 years later I feel like we are finally starting to really see the fruit. It takes time and consistency, but doing these simple things really pays off.

    1. Apathy Ends Post author

      Thanks for the comment, it is tough to be patient but if you can wait it out you will reap the rewards for a long time to come

  3. Brian @ Debt Discipline

    Great overview. So important to take the first step and get organized. Most people don’t have a general idea of where their money is going on a daily or monthly basis.

    1. Apathy Ends Post author

      Thanks for the comment Brian, and so true. Money comes in at least as fast as it comes in (or faster)

  4. Mr. PIE

    Hi AE

    Great read, specially number 7. It feels like I have been practicing things for an awfully long time. Still earning, still learning….it never really stops, the learning stuff, with PF.

    1. Apathy Ends Post author

      With all the great content out there I am still learning on a daily basis, its AWESOME and helping expedite the process.

  5. Jon @ Be Net Worthy

    I like how you’ve pulled everything together into a coherent list. Makes it easy for new readers to see your approach and philosophy. I think #6 is so important for motivation. If you don’t have your goals worked out, it’s so difficult to motivate yourself to do what is necessary. And #7 is a nice addition. Practicing the habits will make them permanent and then everything gets easier. Good stuff!

    1. Apathy Ends Post author

      Thanks Jon – Goals are huge and holding yourself accountable long enough to burn them in is incredibly important.

  6. Amanda @ centsiblyrich

    Great list, A.E.! They are all so important. I think #1 is an absolute necessity because it’s the baseline for getting started. And actually getting started is where many people get stuck. Plus, without knowing where you currently stand, you have no idea what direction to go.

    1. Apathy Ends Post author

      Thanks Amanda!

      The majority don’t start and just stay in autopilot without really knowing where they are going.

  7. Dividends Down Under

    I love this list AE, as it covers a lot of different areas and would extremely useful to anyone along the FI journey. I love #1 because it really gives you a good overall picture and you can create your roadmap to retirement from there.

    You’re right about the achievements stacking up. Our motivation for FI compounds so we get more and more focused on achieving it 🙂


    1. Apathy Ends Post author

      Thanks Tristan – its so fun to watch once you wins start compounding. The beginning can be tough but it only gets easier after you start

  8. Finance Solver

    I love the creating habits guide. At moments in 2am, I am sometimes hit with this burst of motivation to do a lot more with my life, earn more money, network with a lot of people, start a business, etc. However, our body loves to be in a state of homeostasis and so the next day the burst of motivation is balanced by a burst of lethargic feeling. The only way to make it a habit is to do little by little.

    If we’re a little off one day by doing a little more, our body doesn’t feel like it needs to adjust the next day and if the little adjustment becomes the new norm, then doing a little more the next round won’t alarm our bodies to adjust. And so on and so on. It’s not a common concept but once understood, it can be great in creating the habit you want to create!

    1. Apathy Ends Post author

      Thanks for the comment Finance Solver

      And totally agree on the energy burst followed by lethargy – that is why you see so many unfinished projects and blogs bite the dust early

  9. Joe

    This is a great guide. A lot of people haven’t even taken the first step. You have to know what’s going on with your finance to improve it. Creating good habits is a good way to end this list. It can take a long time to create good habits, but once they’re ingrained, you’ll benefit the rest of your life.

    1. Apathy Ends Post author

      Agreed Joe, #1 and #7 are probably the hardest ones. Some people don’t want to even know how bad their situation is and others flame out before they become habits and start over at a later date

  10. Eric Bowlin

    Great guide. I especially like #7 about changing habits. It’s really impossible to build a financial base when you have bad habits!

    1. Apathy Ends Post author

      Thanks for reading/commenting Eric – bad habits or even not realizing what your habits are can derail your base and delay FI

  11. M

    I agree with you. Excellent tips! It’s always better to be safe than sorry when it comes to saving, so it’s important to put money aside and save for things like emergencies and future expenses in whichever way works best for you. Thanks so much for sharing your advice on building a good financial foundation!


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