Financial Planning Tips That Will Change The Way You Think About Money
Do you feel like your money just disappears each month, and you don't feel like you are making progress toward meeting your financial goals? Most people I meet with don't have any idea how much they are spending, and what they are spending it on. It is so hard to finally make the decision to consult with a financial planner, since the whole idea just seems so daunting. Here are a few tips that can help you get started thinking about your money and your financial goals.
- Get a handle on what you are currently spending. You can use an app, such as Mint or Quicken to track your spending. It is actually really simple to get started with either of these tools, and in a few short months, you will have a clear idea on where your money is being spent. Many people are shocked to find out how much they are spending on ubers, eating out and just getting coffee every day. I usually like to recommend that people spend 70% on basic living expenses, and try to leave 30% for lifestyle expenses. This could be anything that does not cover basic necessities. By abiding by this rule, you can save and splurge at the same time, and you will have a clear idea on how much you can spend on fun things.
- Create a budget. Once you have a handle on your current spending, create a budget and stick with it. Mint can be set up to give you alerts if you are going over your budgeted expenses, and then at least you will be aware of the decisions you are making.
- Set up an emergency fund. This should be between 3 and 6 months of living expenses, or 10% of your gross income if you don't have a handle on what you are currently spending. This should be kept in a liquid account that is easily accessible.
- Contribute to your retirement account, especially if your employer offers a match. The company match is free money and is tax deferred if you choose a traditional 401K.
- Review your credit report regularly, and keep an eye on your credit score. Aim for keeping your credit utilization rate below 30% or it can ding your credit score.
- Start saving early, and open a savings account at a higher yielding bank that may offer more than the bank where you have your checking account. I like to recommend that people save 10% of their income if possible, and the emergency fund can be invested in a higher yielding savings account. Once this need is covered, open a brokerage account with Vanguard which offers very low fees. Consult your financial advisor for the correct allocation for your age and risk tolerance.
- Once you have accomplished these tasks, then it is time to make sure you are paying off debt, and are adequately insured. If you have student loan debt, consult a Certified Student Loan Professional to determine the best strategy for repayment. I obtained this designation, and have been helping many people with choosing repayment plans that will allow them to have some of their loan payments forgiven with lower income based payments.
If you are renting and are thinking about buying a home, know how much you can afford, and also consider other costs such as private mortgage insurance, taxes, and home insurance to calculate the payment that you can manage. It is so important to start saving early. The compounding power of the growth of your investments can make such a difference when you are looking to provide for college funding or retirement, and even putting a modest amount in your portfolio at a younger age can really add up. Please contact me if you would like to schedule a call to get your finances on track.