Maintaining control and clarity over your financial management system can be a pain in the . . . neck. It’s easy to get obsessed on the one or two things that you think are going to make or break your current, short-term financial life (underwater mortgage, staggering student loan debt, being 8 ½ months pregnant . . . ). Reality is that slow, incremental consistent steps with your financial management system win out over dramatic action every time.
10 Steps for Simple Financial Management
I recently saw a list of over 30 things that a person should do to clean up their financial life—perhaps one for every day of the month? Yikes . . . even for me–a financial planner–that is just plain nuts. Here’s a list of my top ten things you can do to clean up your finances this month and still stay sane:
Start Mint. I say this ALL THE TIME. The single greatest indicator of a person’s future wealth is their ability to save money. But first, you have to know where it goes! And Mint is the easiest way to start paying attention to that. At a recent consult, I saw within 5 minutes how much more clarity Mint brought than another less-effective, not-to-be-mentioned software program the client had been trying to use. Nothing is more user-friendly than Mint.
Save Monthly Into Cash. To be “financially fragile,” is to be unable to come up with $2,000 in 30 days, in the case of an emergency. And, according to a new study by the National Bureau of Economic Research, nearly half of Americans fall into that category. Even if you can only save $25 per month, you MUST start a cash reserve. Try to keep this separate from normal monthly expenses and day-to-day checking.
Get A Good Rate On Your Cash. If your cash savings is in a simple savings account, it’s probably only earning a tenth of a percent right now. Google “high-interest online savings accounts” and find an account where you can earn at least a couple of tenths-of-a-percent more! Even the difference between a tenth of a percent and eight tenths on cash savings of $5,000 is $35 annually. I could USE that $35.
Review Your Monthly Bills. Is there a monthly bill you’re wasting money on? When I review spending for clients, I’m always asking, “What’s that?” and they say, “Oh, that’s something I used to do (gym, subscription, online membership, etc.).” If you’re not getting value out of it, stop the automatic pull.
Download Online Statements. I have a whole post on document retention standards and the best ways to organize your data, but at minimum, download pdfs of your banking, mortgage and investments. I try not to go longer than three months without catching up.
Rebalance Your Investments. If you haven’t rebalanced your investments in 6 months to a year, it’s probably a good idea to do it before second quarter earnings report—meaning mid-July. You should always have a model portfolio to balance back to (if you don’t, you should talk to me!).
Automate Debt Payments. If you’re trying to pay down debt, you should have the same monthly amount automatically going toward each balance. This takes SO MUCH emotion out of the debt payment process every month! You can set it up, and then forget about it. And, do I need to say it? Stop using your credit cards if you’re not paying them off every month.
Increase Debt Payment by $5 (or more). Once you automate your debt payments, go back every 6 months and increase the amount by $5-$25. Most people don’t even miss that amount in their monthly spending, but it can shave months off your debt payment schedule.
Automate Your Charitable Giving. It’s so much easier to have my charities take out $25 per month than it is to write them a check for $300 once a year. Virtually ALL charities have this option now, starting as low as $5 per month. You feel so proud of yourself after this step!
Ask Yourself The Question. Question: Do you need a financial planner? You might be wondering how long it’s going to take to pay off your debt, or how to best allocate your 401k, or even if the 401k is the best place for you to be saving. Many people feel a lack of clarity over the connection between what they do now, and how that translates into their imagined (desired) future. A financial planner can answer any and all of these questions for you (and more)! But better yet, you won’t have that nagging uncertainty that you’re not making the most of your money.
If there is ambiguity in your mind, then you probably haven’t fully committed to financial action. These steps are small and easily implemented without having to do a lot of research or make a commitment to huge financial change. Like so many other things in life, small, gradual steps are the key to staying on top of your finances. Who knows, perhaps by completing the top ten, you’ll be inspired to do more in the coming months!
photo credit: Vilseskogen via photopin cc