Happy New Year! This is the time of year that many of us are looking forward to a reset in our lives. We look forward to what a new year holds and the possibility of starting some new habits that land us in a better place. Many are focused on weight loss, health improvement and financial improvement. In this blog post, my focus is on financial improvement. My goal is to give you some tips and tricks that can help you turn the page to a more peaceful future.
Tip #1: Get Organized - If you have debt, list out all of your debts on paper or on a spreadsheet. I encourage my clients to list debt balance, interest rate and minimum monthly payment. A great website for getting a handle on your debt and what a repayment plan would look like is https://www.vertex42.com/. The developer of this site has created some tremendous spreadsheets for financial tracking.
Other than debt organization, I would recommend tracking your net worth, which is basically what you own minus what you owe. You can do this on the same website as mentioned above. Tracking your net worth annually is a good habit to make sure that you are making progress with your finances.
Tip #2: Spend less than you make EVERY MONTH and do this for a really long time and you will be successful. To do this you will need to have a budget set up where you track your income and expenses every month. The 2 apps or online sites that I recommend are Every Dollar and YNAB. These are fairly intuitive and allow you the ability to link to your account(s) so that your transactions come in automatically. Make sure to "assign" your transactions to a category at least every 3 days. (Doing this daily takes 5-10 minutes - this is what I do.)
Tip #3: Set up a small emergency fund of $1000 in your savings account. Remember the purpose of this account. It is basically there to help you address an unexpected expense so that you do not get derailed as you repay debt. Most people can get $1000 accumulated in 1 month by not eating out, selling stuff, or just cutting way back on spending, or working extra.
Tip #4: Simplify - Nobody needs 15 credit cards! My advice to my clients is to make your financial life as simple as possible. Having multiple credit cards and multiple accounts creates unnecessary complexity. Ideally, one debit card is all that you need.
Tip #5: Once you have all of your non-mortgage debt paid off, have an emergency fund of 3 - 6 months of expenses. Two big questions arise here:
How do I know what I need to cover even 1 month?
How do I determine if I need 3 or 6 months?
You need to know what it costs to run your household every month - rent/mortgage payment, utilities, food (eating at home costs), transportation, clothing, insurance, debt payments and childcare. Once you know these basic costs, then you know what a 1 month emergency fund would be.
3 or 6 months?
3 months if you are single without dependents AND you have a stable income or if married, you both have stable income
6 months if married and only 1 spouse works, you are a single parent, you have seasonal work, you have irregular income or commission-based income, you are self employed, or if someone in your home is chronically ill.
It is my hope that you find these tips to be useful as you make efforts to get on track with your personal financial life!
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