Doesn’t it feel like just yesterday we were young and carefree? Our biggest worries were our social life and our final exam schedule.
Now you’ve got a house. A mortgage. A demanding job. Your once clean and organized house is now overcrowded with large plastic toys. You worry about saving for college. Free time is non-existent these days.
We grew up. And our responsibilities grew up, too. Don’t let yourself be late to the game and say “Wha’ happened?!” Be proactive.
Let’s get your financial house in tip-top shape. The sooner you get it all together, the better you will own your financial future and build wealth. Here are some of our best tips to help you order your financial world:
Create a Budget
This one may seem obvious, but it’s surprising how many people either don’t have a budget, don’t stick to a budget, or don’t know how to budget properly.
If you get into the habit of tracking your spending, giving every dollar a job, and staying on top of the ebb and flow of your money, you will be in control of your finances and be able to work towards your goals instead of crossing your fingers and hoping for the best.
There are a plethora of helpful tools and apps for budgeting, so there’s no excuse to be in the dark about where your money is going. You Need a Budget (YNAB) is a personal favorite of mine! I’ve tried a lot of budgeting software tools over the years (Microsoft Money, Quicken, Excel sheets, etc), but YNAB is hands down the best.
YNAB is so much more than just nice software (and it really is well-designed). Their whole budgeting philosophy takes traditional budgeting and turns it on it’s head. That’s a good thing, because traditional budgets seriously don’t work (coming from experience). YNAB’s budgeting philosophy does takes a little getting used to, but they offer well-run, live, online classes to help you get started (and their free!).
Know Your Net Worth
This tip also falls into the know your money category. Your financial house is not just the money in your checking account. Think of your Net Worth as a snapshot in time of exactly everything you own minus everything you owe. By having this snapshot in front of you, you can see where you stand and what you need to do to reach your goals.
Pathway Financial offers a powerful online portal that will give you this picture of your Net Worth. Your entire financial picture–investments, 401k’s, college savings plans, bank accounts, credit card accounts, mortgage, student loans, everything! – is updated daily and is accessible at any time. Take a look to see it in action.
Analyze and Reduce Debt
Now that you know where your money is going and have a full picture of your financial life, figure out how to get out of debt. Make it a priority to pay down your debt and trim up your budget to put extra cash towards your payments.
Want to earn 10-30% a year on your money? I’m not selling you on some sketchy pyramid scheme here… what I mean is to pay off your high-interest debt. Whatever the rate is on your debt, that is your rate of return. And it’s guaranteed.
Pay off your $10,000 credit card that charges you 17.24% APR, and it’s the same as putting that money in the market and getting a 17.24% return. That’s a brag-worthy return my friend! All with zero risk.
Maybe even get a little creative at your next BBQ. When you brother-in-law goes on about his latest stock tip, you can casually mention that you just nabbed a 17.24% return on ticker “APR.”
As Dave Ramsey has said, “Debt is normal. Be weird”. We like weird.
We’ve even got a handy app to recommend for your debt management: Ready for Zero.
Revamp your Emergency Fund
Life happens. Shit happens. And it happens to all of us. Unexpected expenses can wreak havoc on even the most perfect budget. In order to avoid going into debt to deal with these costs, you need a “cash cushion”.
Here are some emergency fund basics:
- Set aside money from each paycheck to create an account with six months worth of living expenses readily available.
- The size of your fund will depend on the size of your family, current debt, and insurance coverage.
- You will not regret having an emergency fund. There comes a time when EVERYONE needs extra money for the unexpected. You are not immune to this.
- It’s far better to have an emergency fund and never need it than not to have one and desperately need it.
- It’s not a damn investment. Don’t be tempted to put it into the market “just for a bit.”
If anyone depends on you financially, you need insurance.
No one likes to think about scenarios that involve tragedy or upsetting situations, but I know you want your family taken care of no matter what happens. You shouldn’t be over-insured or under-insured. Review your policies, ask questions, be honest about your financial snapshot and know what it would take to provide for those you love.
When researching insurance, look into the “big 4”: Life, Health, Disability, and Liability, and stick with term life insurance. Keep the mindset that life insurance is for protection, not investment.
Estate planning may sound uppity. But it’s for everyone.
This piece of your financial house goes along with insurance coverage because it means planning for some unpleasant scenarios. But think of it this way: if you don’t take care of business, you will leave a mess for others to figure out.
Estate planning involves having a will (that is current and regularly reviewed), power of attorney, healthcare proxy, and a trust. Also, make sure that your beneficiaries are up-to-date on all accounts and policies. It will take time, money and emotions to create an estate plan, but it is a priceless investment for your family and their future.
Organize and Rebalance Your Investments
Do you know where your all of investments are at, and what their current value is these days? Do they correspond to your risk level Have you rebalanced recently to make sure your portfolio composition still aligns with your risk tolerance?
Figure out your investment strategy, based on your age, personality, and investment philosophy. Stick to your plan despite market headlines, and make sure you have all your investment details in one place so nothing falls through the cracks. Yes, you want a low-maintenance investment strategy, but low-maintenance does not mean being uninformed about your finances.
How do you do this? We can help with that. Our online portal (here’s an example) not only keeps everything – even loans, debt, and mortgages – in one location, but it is updated daily so you will ALWAYS know what’s happening with your money. Get organized today to build wealth smarter!
Open a 529 College Savings Plan for Your Kids
There is tremendous value in investing in your kids’ future. College may seem far off when you have toddlers running around, but don’t get caught in the time trap. It goes fast.
Most 529 plans are straightforward and easy to start. There are multiple options to invest in and even starting with $25 a month can make a significant difference in the future education costs for your children. If you want to learn more about 529 plans, check out our blog posts written especially to help you get this piece of your financial pie in order.
There are a lot of facets to your financial house. Instead of getting overwhelmed, become inspired to get everything under control and plan for the best financial future imaginable. Let me help you take care of your financial house. I would love to hear from you today at (248) 567-2160.
Pathway founder and principal Greg Brown is a tech-savvy advisor with broad financial planning and investing expertise. Greg’s financial advice has been featured in publications like the Wall Street Journal, Businessweek, and USA Today. He holds a master’s degree from the University of Chicago and a mechanical engineering degree from Michigan State University. Prior to Pathway, Greg was a lead analyst at Morningstar and previously held engineering roles at Dell.