Essential Money Management
Ask yourself: Do I really have a budget in place? Is a lack of consistency (regarding spending and saving) stopping me from acquiring the things I want, e.g., assets or living the lifestyle I want to live? When should I hire help?
Step One: Getting Organized
Creating (and maintaining) a budget can be a moving target and about as appealing as spring cleaning. However, to make your budget process more effective, it's essential to recognize how much you have coming in and how much you are spending. Thorough planning can help you determine if you are spending too much or too little on certain things, allowing you to adjust accordingly.
Here are a few reasons you should document your budget:
I want to exercise better financial judgment
I need something to alert me, telling me to ease up on the spending
I am saving for a specific goal, e.g., emergency savings or a big purchase
When drafting your budget:
Look short term. Start small. Instead of forecasting one year, plan a couple of months at a time. This approach may present less pressure and more commitment to your plan, focusing more on “the now” and celebrating success as time progresses.
Be flexible. Don't beat yourself up when you get side-tracked. Emergencies or “can't miss” opportunities come up all the time. Life happens. When you start making budgeting a rigid chore, it becomes harder to follow through.
Review consistently. Each payday is an excellent time for a quick review. Scanning your budget after your direct deposit hits could lessen the temptation of unnecessary splurges.
Step Two: Have a Goal in Mind
Again, while challenging at first, the results from a realistic budget are worthwhile, particularly if lowering debt obligations is one of your goals this year—budgeting spots where you have (or potentially have) additional funds to expedite the debt paydown process.
When working towards becoming debt-free:
Categorize your debts. Some debts are good to have, such as a home loan. Others are not so good, such as high credit card balances. Take a moment to write out all your debts, sorting them by good vs. bad, short-term vs. long-term, and according to their interest rate, from highest to lowest.
Brainstorm a repayment plan. Choosing what to pay off first can be difficult, especially when you carry a lot of debt. And let's be totally clear: there is no 100% correct way to get rid of debt. Also, the process takes time. Brainstorming aims to figure out a way to free up cash flow each month to apply to other debts, creating a domino effect over time. Paying off high-interest debts first, the lowest balance first, and/or exploring debt consolidation options are all part of the brainstorming due diligence.
Avoid the minimum payment game. A $5,000 credit card balance with an 18% interest rate and a minimum payment of $125 could take up to 23 years to repay, paying close to $7,000 in interest along the way. That's a long time and a lot of finance charges. Paying over the minimum could help lessen that time horizon and interest charges (assuming no other charges are made).
Step Three: Putting It All Together
If you're reading this, there's a good chance "putting it all together" is an area you would like to improve this year. This raises the question: when should I hire a professional for assistance?
Basic money management and debt relief encompass a variety of services.
We focus on budgeting, strategic ways to eliminate debt, consolidation loan considerations, and more. If things have become tight over the years due to life events or excess spending, we can help you work towards a more stable financial future.
Step Four: Look Toward the Future
Many employers provide their employees with retirement plans. While 401(k) plans are commonly heard of, there are other types of plans such as 403(b), 457, Thrift Savings Plans, IRAs, and more.
This retirement review aims to ensure that you are familiar with your plan's offerings and to help you build a framework for investing in your retirement based on your goals, risk tolerance, and risk capacity (or investment time horizon). Your employee retirement plan will be critical to your financial security when you're ready to stop working full-time. Build it on a solid foundation.
Essential Planning helps our clients:
Create routine budgets to stay on top of spending
Model repayment plans to save time and interest
Evaluate credit history to seek improved scores and/or potential lending options
Set aside emergency funds for a rainy day
Review employee retirement benefits
Start your journey toward financial freedom today!
Please schedule an appointment to discuss our planning options or send a message with any burning questions.