Now that the Ringing of the New Year and setting New Years Resolutions have passed, I wonder how many of us decided to turn our focus to our finances in the New Year?

With the state of our financial affairs contributing to so many factors of our lives – financial woes stress our marriage bliss, they cause the need to work additional hours or put up with the j.o.b because we can’t afford to make a change, reduces our time spent with friends due to funds, and the list goes on. perhaps a happier New Year lies in the weight of our wallets?

There’s a saying I heard:

“money can’t buy you happiness, but I’d rather cry in a mansion.”

I kid and digress.

It’s the start of a new year, the perfect time to stretch and tone some of our financial muscles and get our bank accounts in shape – starting with a solid financial foundation.

According to Holly Morphew, a certified financial health counselor, “Whatever financial success looks like to you, it’s important to have a financial foundation so that you can get where you want to go,” she says. And she makes it easy by supplying her 6 steps to building a good financial base.

These same techniques have been echoed in nearly every financial advisor or CFO conversation regarding money I’ve ever had the pleasure of discussing.

STEP 1: Make a plan and stick to it

The reason we want to have our personal finances under control is really so that you can create the life that you want,”  Morphew says.

If you fail to plan, then you plan to fail. The first and most important step for a solid financial foundation is to look at where you are in your financial progression and determine what goals you want to obtain. As an example, my family’s goals this year included: saving for baby #3 – due in May, going on a mini-vacation for Thanksgiving, and paying off our Mortgage to be Morgage free in 4 to 5 years.

Take inventory of your financial life:  are you in debt? Need an emergency fund? Saving for college or paying off college?

Once you establish where you are and what you want to tackle, you can address and plan for the goals one by one.

“Having a strategy simplifies things,” Morphew says.

STEP 2: Decide how much you have to work with

Once you have your goals determined, your next step is to analyze your impact factor: how much cash flow do you have available after expenses to put money towards those goals.

This number is your power: It’s a budget. How much money am I bringing in, how much money is going out, and how much money do I have left over at the end of the month to put to its best use,” Morphew explains.

If you don’t start working with a budget, you will be in the same financial position when next year rolls around. Keep in mind budgets look different for different people. Some people can budget on a very high level, while others need detail budgets to keep on track. Whatever works for you, start to employ some type of understanding of what is coming in, what is going out and what is left over. Without doing this, I promise you, any leftover money will not sit in the bank. I guarantee it will disappear. Before my family started budgeting we were waisting over $500 a month on fast food and miscellaneous items that we can not account for today.

Keep an eye on your money or it will run away from you quicker than a toddler Disney World.

STEP 3: Avoid Credit Cards 

Once you know what you’re working with, it’s time to start allocating your money. Morphew advises putting money aside in a small savings account so you can avoid charging things to your credit card, potentially accruing more debt.

The idea is that you have the cash to pay for things when they come up so you’re not constantly having to rely on using credit cards and having high-interest rate debt,” she says.

There is a smart way to use credit cards, accruing more debt when you don’t have much in the terms of free cash flow, savings, etc. is not it. Until my family was disciplined enough to not accrue more debt that we couldn’t pay in the next month, we didn’t touch a credit card. And we survived – for eight years without a credit card.

STEP 4: Crush your debt

“Crush your debt—it’s a strong way to put it, but the goal is to get out of debt as soon as possible,” States Morphew.

Snowball your debt, identify the highest interest rate debt that you have, and put leftover money (after paying all your credit card minimums) towards paying down this debt first. Then move on and tackle your other debts, working from the highest interest rate to the lowest.

“Once you’re out of debt, you have all of that extra money back in your budget to build a huge emergency savings account, or invest in something that you want, like a home or business,” Morphew says.

“To me, not having debt means freedom,” she says.

STEP 5: Build an emergency fund

Build an emergency fund so you don’t go into debt or take from your savings goals when there is an unexpected situation.

“This is just a little bit of money you’re going to use in case you’re not able to work—because you have to take time off to care for a loved one, or because you have an illness or you’re injured,”  Morphew says.

I’ve read many financial advisors suggest starting with at least 1,000 dollars in this emergency fund and build up to three to six months of expenses. This will allow you to handle large impact emergency situations, such as the loss of a job or major medical situation. (Keep in mind the average time it takes to replace a lost job is 6 months, this emergency fund becomes most important if you find yourself facing the unfortunate.)

STEP 6: Dream big!

Once your debt is paid off, dream.  For me, it was then tackling my mortgage so that 75% of my income is free cash flow. Imaging the fun and investments that can be had if a rent or mortgage note is not due. From there, the dreams get bigger and bigger.

“Having freedom and choices to do the things that you want to do in life when you want to do them: that’s what financial security is all about,” Morphew says.