How firefighters can size up their financial situation

The siren is screaming. The lights are flashing. A column of smoke is on the horizon.

Your blood pressure has spiked, and your heart rate is on the rise.

You arrive on the scene, take a breath, and deliver a size-up. You complete a walkaround. And now it’s time to get to work.

You’ve gathered as much information as possible to now execute on the goals of search, rescue, contain and extinguish.

You might be wondering what this has to do with your finances. Well, let’s change the scenario.

You and your wife are screaming. Your face is turning red like the flashing lights. And you wait for smoke to start pouring out of yours or your spouse’s ears as the conversation heats up.

Your blood pressure has spiked, and your heart rate is on the rise.

This is a money emergency.

Money is the No. 1 topic couples fight over – and I can’t imagine it’s any different for firefighters who are married. In fact, like many things, we are probably at a higher risk. Why? Because we are gone for 24 to 48 hours, we don’t earn a huge income, and we often communicate poorly.

So, what can you do to avoid money emergencies and get on the path to financial freedom? You can start with a financial size-up.

The financial size-up

If you want to be successful with your money – whatever that means to you – you have to understand two points:

1. Where you are today
2. Where you want to go

Your financial size-up will help you with the first point, so let’s start there. Think of yourself as being on the scene of your financial situation. How do you size it up?

Calculate your net worth

First, you have to create a net worth statement – or statement of financial position. Why? Your net worth statement shows you what kind of financial position you are in.

Are you up to your eyeballs in debt? Are you lagging behind in retirement savings? Is your net worth positive or negative? Your net worth statement will make this clear. And just like on the fireground, your circumstances will dictate your actions.

By creating your net worth statement, you are forced to evaluate your circumstances. Once you understand your circumstances, you can begin to develop strategic goals and tactical objectives.

Now that you’ve got a better understanding of the financial environment, you’ll need to evaluate the tool you have to get the job done.

What is the No. 1 tool in defeating debt, building wealth, and setting the stage for a successful retirement: your income.

Evaluate your cash flow

You have to evaluate your cash flow. How do you do that? You build a budget.

Your budget is analogous to a pumper on the fireground. Water comes in, and you’ve got your static pressure. You tell the water where to go, and you are left with the residual pressure. Similarly, income comes in your bank account, and you’ve got static income. You tell it where to go – with a budget – and, hopefully, you are left with residual income. Your residual income is the critical factor in financial goal accomplishment.

If you want to pay off debt quickly, you’ve got to spend less than you make. If you’re going to develop an emergency fund, you’ve got to spend less than you make. If you want to build wealth, you’ve got to spend less than you make.

Spending every last dime you earn or spending more than you make by utilizing credit beckons chaos to crop up in your life. It’s only a matter of time before your financial pump cavitates. Budgeting forces you to take measure of your income and manage it.

If we pumped fires the way most firefighters budget their money, it would sound like this:

Chief: “Well, where’d all the water go?”

Pump operator: “I don’t know.”

Don’t not know where your money goes.

A budget will tell your money where to go, so you don’t have to wonder where it went. Evaluate your cash flow and continuously budget your money.

What’s next? You established where you are today by conducting a financial size-up. Now, you must figure out where you want to go (i.e., strategic goals) and map out how to get there (i.e., tactical objectives).

Take aim: Have financial objectives

Before you set your strategic goals, you need an aim. What is your purpose? What is the desired outcome? What do you want to accomplish? This could be something as simple as “provide for my family and reduce financial worries so we can focus on what’s most important to us.”

Ask yourself questions like the following to get the juices flowing:

• You have all the money you need, now and in the future. What will you do with it? How will you live your life?
• Where do you want to be in 1 year, 5 years or 20 years? Be specific.
• When do you want to retire? Do you ever really want to quit working?

Identify your strategic goals

Now that you have developed an aim, set your strategic goals. Let’s continue with the simple aim from above.

Aim: Provide for my family and reduce financial worries to focus on what’s most important to us.

What do you have to do to provide for your family and reduce financial worries? Typical answers might be to earn a substantial income, build an emergency fund, pay off debt, start investing, pay off the home, or save for college.

First, let’s focus on the “reduce financial worries” aspect. What causes your financial worries? Are you living paycheck to paycheck? Do you have any emergency savings? Are you drowning in credit card debt?

If so, your strategic goals would be something like:

1. Build a starter emergency fund (1 month of expenses).
2. Pay off debt.
3. Build a fully funded (3-6 months of expenses) emergency fund.

Now, create tactical objectives to move you toward goal accomplishment.

Create your tactical objectives

This is where the rubber hits the road. Fires don’t go out by talking on the radio, and financial goals don’t get accomplished by putting them on paper. You have to take action.

So, what actionable objectives do you need to set to build a starter emergency fund?

1. Calculate how much one month of expenses equals.
2. Create a budget and calculate how much residual income you can put toward saving.
3. Analyze areas of overspending and reduce unnecessary expenditures – think unused subscriptions, car insurance, groceries/dining out, etc.
4. Save all residual income into a liquid savings account

Once you’ve accomplished your first strategic goal, move on to the next.

Pretty soon, you’ll be in a better financial position than you have ever been. The path to financial freedom starts with your financial size up, but it always ends with action. So, quit talking and start doing.

Action is the antidote.

[Read next: A firefighter’s guide to financial preparedness]