The Reich Report-September Reset
With summer winding down, September offers a chance to reset and refocus. There is a 'back to school' feeling as we settle into new routines. It can feel like a mini–New Year so it’s a great time to time to get a jump on your finances for the actual new year. This can help you manage stress and anxiety about money. Afterall, money is one of the highest causes of stress in America and the #1 thing couples argue about.
So where should you begin? Well, in order to know where you are going, you need to know where you are now.
- You have to take stock of your current financial situation by laying out your current picture. What is your income? Expenses? Debt level? Current savings? Don’t forget to include investment accounts, 401(k)s etc. You need to make sure your income exceeds your expenses in order to save and invest. If it doesn’t, then you need to look at everywhere you are currently spending money.
- The best way to track spending is to lay out a budget and compare what you are spending a year vs. what you expected to spend. When creating a budget, don’t forget to include often overlooked items such as personal care (haircuts, nails, etc.) and gifts for birthdays, holidays as well. Use a budgeting app or online sample budget for you to follow.
- Now that you know where you are and have a budget, you need to develop a set of financial goals. Your budget can tell you if your debt is too high or you are paying too much interest. If so, your goals should include addressing all of those issues.
- Part of your goals must include an emergency savings fund of times when things pop up such as an unplanned home or car repair, loss of a job or reduction of work hours. Shoot for 4-5 months’ worth of expenses in your emergency reserve.
- Debt management is key to achieving your financial goals. Too much debt can limit your ability to save and ultimately invest. Look at your debt and either start with the smallest debts first, or those with the highest interest rates. Look to get rid of credit card debts quickly since they tend to have the highest interest rates and also aren’t tax deductible like mortgage interest is.
- Investing should follow these steps. The faster you can start investing, the faster you may be able to achieve financial freedom. The goal is to ultimately have your investments make more than you do from working. That’s true financial freedom. Being able to walk away from your job if you choose to because your investments earn more than you.
- Lastly, if you are feeling overwhelmed by all of these steps, then seek the advice of a professional who can guide you through this process. The role of a financial planner is to guide you through wherever you need help with financially.
While it might not be easy, getting your finances in order can be one of the most rewarding and confidence boosting endeavors you can take on for yourself. There’s no better time to start than right now. Taking the first step is the hardest but before you know it, you’ll be on the road to financial wellness.
Frequently Asked Questions About Refocusing on Your Finances
1. What should I include when assessing my current financial situation?
Review your income, expenses, debt, savings, and investment accounts, including retirement accounts such as a 401(k). Understanding your complete financial picture is the first step toward setting effective goals.
2. How much should I have in an emergency fund?
Aim for approximately four to five months’ worth of expenses in an emergency reserve to help cover unexpected events such as home or car repairs, job loss, or reduced work hours.
3. What should I do if I feel overwhelmed by managing my finances?
Consider seeking guidance from a financial professional who can help you navigate budgeting, debt management, savings, investing, and other financial goals to stay on track for the remainder of the year and prepare for the new year ahead.