Getting your finances in order feels so great. Even if the picture is bleak, knowing where you stand always comes as a big relief. You’ll probably spend less energy getting your finances in order than you do worrying about not knowing.
Ready? Let’s do this.
First, make sure you have easy access to your investment accounts. These are your good news nest-eggs, and you want to make sure that you can keep an eye on them, and that they are invested according to your goals. We have mostly high-risk long-term investments in index funds. But if you are retiring sooner or need to access the money for a big purchase you will want to adjust those investments accordingly. Also, review the fees being assessed to your investments. If you are paying a money manager to invest for you, chances are you are paying more than you should be in fees. Vanguard is a reliably low-cost brokerage where you can manage your own money in low-fee index funds.
Now make sure you can login to your credit cards, and take a look at all of your APRs, balances, and account fees. These guys are the snakes, and you need to aggressively manage any debt you are carrying on credit cards. If you have a credit card with a high APR could you use a balance transfer from another card to pay it down? Sometimes if you call the credit card and request a lower APR they will be able to make that change for you over the phone. Make a plan to prioritize debt payments to your credit cards, and set a realistic goal for when you can be credit card debt free.
Next, look at your savings. What savings accounts do you need? We have 529 savings accounts for our kids, plus a cash buffer savings account. Most people suggest having six months worth of cash in your savings account. If you have much more than that you are leaving money on the table; since you could be earning a higher return by investing that cash. Too little in savings, on the other hand, and you become too dependent on your paycheck arriving like clockwork. Shit happens, and it’s best to have a pile of cash available to mitigate it. How much can you transfer into your savings account each month?
Finally, budget. Budgeting is a bear, but without it you have no idea where your money is going. Because of my penchant for list-making, I like to get a big piece of paper and a beautiful pen and draw it all out. Then I use Mint to categorize our actual spending against our budget. Mint also keeps all of your accounts on one homescreen so it’s easy to keep tabs on your overall financial picture. It is important to set a realistic budget, even if that means your ends aren’t “meeting” yet. Once you have a realistic sense of what you are spending, you can start to set reasonable goals to trim expenses and change spending habits.
Doesn’t that feel better? Now that you know, you can start setting realistic and measurable financial goals.
[images from The Art of Clean Up: Life Made Neat and Tidy]