Happy New Year! With 2020 in the rearview mirror, we are hoping for a great 2021.
January is a great time to think about getting all of your financial paperwork organized. Organizing will create a calm space, save time in the long run, and help prepare for tax season. Below are 5 ways to help get your financial life in order.
Organize all your Paperwork and Accounts
Organize all documents that are kept in physical form. While we like to think we live in a digital world, often we still have important documents that need to be kept in a file in our home. Take the time to get these files organized appropriately.
Organize all documents stored online. Some documents can be stored in an online storage system such as google drive. We recommend creating a secure organized folder system for this as well.
Utilize a password app for all of your passwords. One of the biggest struggles clients have is remembering the password for all of their accounts. We recommend utilizing a system such as LastPass to create a secure place to store all of your passwords. Just remember to create a secure password for your password app login. Once you have your passwords in one place, it is a lot easier to stay organized when you need to login to those accounts.
Create a Financial Snapshot of where you are Today
Create a list of all of your assets and liabilities. Assets are anything you own and liabilities are anything you owe.
Assets Liabilities
Checking Accounts Mortgage
Savings Accounts Auto Loans
Retirement Savings Consumer Debts
Investment Savings Personal Loans
Real Estate Student Loans
Autos
Calculate your Net Worth. Net Worth = Assets - Liabilities.
Track your Expenses
Create a Spending Plan (a.k.a. Budget). This may be one of those dreaded things but getting control of your spending can be one of the most calming exercises you can do this year. There are a lot of resources available to assist in creating a spending plan.
There are online tools such as mint.com and YNAB. These connect to your accounts and do some of the tracking for you. It will allow you to change how transactions are classified and create an online budget. This may be a good option for you.
We have found the most success with clients who utilize an excel spreadsheet or google sheet. This allows you to become more aware of your transactions and categorical spending because you are doing the categorizing yourself. As we enter those expenses, we are rethinking whether the purchase aligns with our goals.
We are very excited to announce that we have created a very easy to use google sheet called the Mindful Spending Plan. This is available for our current clients and can be a service by itself as well. We are also creating a course that includes the google sheet and videos on how to use it that comes out on January 15th.
Create Savings Goals and a Debt Paydown Strategy
Savings Goals allow us to have the cash available when needed and not use credit cards for those expenses. Below are a few example savings goals;
Emergency Fund - 3 to 6 Months of Living Expenses in case of an emergency such as a job layoff or temporary disability
Larger Expenses - Prepare for larger expenses such as auto expenses, home repairs, etc.
Holidays/Vacations - Begin saving for holidays and vacations as your priorities allow. Planning out how much you can save each pay period will allow you to create an appropriate spending plan for these expenses
Debt Paydown - creating a debt paydown strategy will allow you to focus on getting rid of the unnecessary debt. This will free up cash flow to fund some of the fun savings goals. As part of our Mindful Spending Plan, we have included a debt paydown plan. You can also find resources online to assist in creating a debt paydown strategy such as debt snowball or debt avalanche utilizing this calculator.
Automate, Automate, Automate
The more you can automate bills, transfers to savings, and debt paydown, the more likely you will accomplish your goals.
Most bills can be set up to be automatically taken out of your checking account. Make sure you have prepared your spending plan and the money will be in the account.
Transfers can often be set up through your online banking website. Once you have created your savings plan, calculate how much time until you need the money and create a weekly, bi-weekly, or monthly transfer to meet those goals
Happy New Year and Cheers to 2021!