Protecting Your Financial Future: 7 Steps To Better Manage Your Money

It only takes one unexpected event – a layoff, a health crisis, a death in the family, to throw our financial future into disarray. It’s easy to dismiss keeping a budget or staving off saving for later when the cash flow is flush. But what happens when it abruptly stops? This post isn’t intended to scare you, it’s to help you prepare, because no one is immune to life’s challenges as we witness daily in our own circles. And truly, the best offense is a good defense. 

Photo by Paige Cody

Here are seven ways to do a financial temperature check:

1. Begin with a Clear Picture of Your Finances

Before you can create an effective budget, you need to understand your financial situation. Start by calculating your total monthly income, including your salary and any other sources of income. Next, list all your monthly expenses, including rent or mortgage, utilities, groceries, transportation, and debt payments. A good way not to miss anything is to review your most recent monthly banking statements, debit card transactions and credit card bills, as there may be a few things on autopay that you’ve completely forgotten – or no longer need.

Subtract your expenses from your income to determine your discretionary income.

2. Create a Realistic Budget

A budget acts as a financial roadmap that helps you allocate your income to cover expenses, save, and invest. Your budget should be realistic and flexible, accounting for both essential and non-essential expenses. Allocate a portion of your discretionary income to savings and debt reduction. Ensure that your budget allows for occasional splurges (it’s important to reward yourself, too), while prioritizing long-term financial goals.

A good rule of thumb is the 50/30/20 principle which recommends allocating our after-tax dollars as shown below:

• 50% Needs

• 30% Wants

• 20% Savings & Debt Repayment

If you can spend less and save more than listed above – even better. Everyone’s financial situation is different, so please only use this as a guide and adjust as needed.

3. Track Your Spending

Budgeting is an ongoing process, and keeping track of spending will ensure you’re sticking to your goals. Numerous apps and tools can help monitor expenses effortlessly, as they connect to your various accounts (once you grant permission) and update automatically with each swipe or transaction. A quick Google search will yield several good options for budgeting apps, such as Mint, which is free. Regularly reviewing your spending habits helps identify areas where you can cut back and save more. Those monthly subscriptions (Netflix, Hulu, Spotify, etc.) add up and are easy to lose sight of when they’re on autopay.

Photo by Unseen Studio

4. Build an Emergency Fund

Having an emergency fund provides a financial cushion that can help you navigate unexpected expenses such as medical bills, home and car repairs, or an unexpected loss of income, without falling into debt. The Certified Financial Planning (CFP®) Board of Standards recommends building an emergency fund with three to six months of fixed and variable expenses. These funds should be easily accessible in a safe and liquid account. Start small and gradually increase your savings until you reach this goal.

We are now living in a gig economy (where people earn income providing on-demand work, services or goods) and there are so many ways to earn additional cash to grow that emergency fund. Think about something you are specifically skilled in or like doing, and advertise your services. Like caring for dogs? Rover is a great service where you can watch or walk someone’s dog and earn extra income. 

5. Prioritize Debt Reduction

High-interest debt can eat away at your finances if you aren’t careful. Prioritize paying off credit card debt and loans with the highest interest rates – first. Allocate a portion of your budget to debt reduction, and as you pay off one debt, redirect that money towards the next one. This snowball effect can help you knock out debt faster.

6. Save and Invest for the Future

Saving and investing are key to building wealth and achieving financial goals. Set up automatic transfers to your savings and investment accounts to ensure you consistently save and invest. Automation is key and has helped many of my clients streamline their financial lives.

7. Review and Adjust Regularly

Life is full of changes, and your financial situation is likely to change, too. Don’t set it and forget it–review your budget quarterly and adjust as needed. Improving our budgeting and money management skills is crucial for financial success.

Celebrate your financial victories, and don't be discouraged by setbacks. Financial planning is an ongoing journey, and with dedication and discipline, you can achieve your financial goals and dreams. 

If you have any questions about financial planning, please drop me a note via email, and we can schedule a complimentary meeting to review your financial situation, estate and or retirement planning.