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“You Don’t Decide Your Future. You Decide Your Habits and Your Habits Decide Your Future” 1
What is “financial housekeeping”? Well, it is essentially the process of keeping your finances in good order through regular attention and maintenance. A quick dusting down of your budget each week or shining up your savings with better planning and research can make all the difference to overall financial health.
Financial health, like physical health, can be achieved through a fitness process. Achieving financial fitness requires discipline and determination over the long term, just like running a marathon. Financial fitness means feeling good and confident about your financial situation. It means being able to manage your money to meet your current long-term needs.
A. The Basics
· Make your finances a regular priority
Just like regular housekeeping, the financial version needs to be regularly done if you want your finances to be orderly and sparkling. Schedule in some time once a week to look over budgets and review your goals to see where you are with what you have in the bank – and what you are trying to achieve.
· Carry out a financial spring clean often
Overspending and financial waste can be curbed with a regular review and clear out of your finances. Are you paying for apps or services that you just do not use anymore (e.g. online streaming or gaming apps)? Do you know how much you spend on coffee every week and are you eating the food that you buy, or does it just end up in the bin? Go through every aspect of your financial life and assess whether it is working and if improvements could be made.
· Always hesitate (“Sleep on it”)
Generally, hesitation is not always helpful in life – except when it comes to your finances. If you are trying to improve the way that you manage your money, then a little hesitation is sometimes no bad thing. Feeling like you want to spontaneously purchase a whole new outfit or TV? Just give yourself a day or so to think about it. Looking at exotic holidays online and wondering if you could just skip a few car repayments to take advantage of a discount? Just wait 24-48 hours and then think it over again.
· Regularly reassess your options
Interest rates change on a regularly so, it makes sense to review how this affects your financial life as part of routine financial housekeeping. Could you pay less for money that you are borrowing, for example? Or is there a better product for your savings that would help you to generate more income from what you put aside?
B. The 8-Step Process
To begin your training toward a more secure financial future, follow these eight proposed steps to your financial fitness.
1. Set financial goals
You cannot reach any goals if you do not set them. Planning how to use savings and investments to reach your financial goals is key. Determine how much you need to save over time to finance your dreams and include an emergency fund in your goals.
2. Understand where your money is going
Create a budget that includes necessities, required expenditures, discretionary items, and the periodic savings necessary to finance long-term financial goals. Track your spending and compare it regularly against your budget and make changes to your spending habits where necessary. Use the knowledge and skills you gain over time to spend less where possible and save more.
3. Manage your debt
Curtailing the use of debt for consumption is crucial when trying to optimize savings and investment capital. Avoid high-interest rates and potential fees by minimizing the use of credit cards. Build a debt-management strategy to reduce and eliminate high-interest debt and to accelerate the payment of debts like student loans and your mortgage if they are priority.
4. Put your finances on autopilot
Put money in your savings account using direct deposit so that you do not spend it. Make sure regular contributions make it into retirement and other investing accounts. Use autopay to manage and pay recurring bills like mortgage or student loan payments. Use a money-management application to help track payments and other expenditures.
5. Maintain steady lifestyle
Spending does not have to grow at the same rate as income. Growth in income, bonuses and other windfalls can increase savings and investment accounts. Keeping expenditures relatively constant over time is a key method in achieving a secure financial future.
6. Invest wisely
Establish a low-cost, globally diversified portfolio that is appropriate to achieve both short- and long-term goals, use a broadly diversified portfolio of global stocks and bonds to obtain a proper return in regards to your attitude about, ability to take, financial risk. Where appropriate, think long term and do not be overly focused on the short-term performance of your investments. Stick to your investment plan and review your portfolio periodically to stay on track.
7. Acquire knowledge and seek advice
Being financially fit means understanding and utilizing the main principles and best practices in saving and investing. When needed, get help from accredited investment adviser that can help you build an investment plan and portfolio to meet your financial needs.
8. Start now & keep your eye on the horizon
The best approach is to start now!
And remember committing to financial housekeeping means keeping your eye on the horizon. Living in old age is becoming increasingly expensive and poverty is a very real threat for many who reach pensionable age. Do your current financial arrangements include a provision for covering the costs of living when you are in your golden years? If not, then this is a reassessment that is going to be essential for keeping your finances in order.
C. Key Documents to Keep
Keep these financial documents safely in a locked box or file cabinet:
· The last 5 years of your tax returns (state and federal)
With each year’s tax return, keep:
· W-2 forms
· Income statements from your bank and mutual funds (called a 1099)
· Canceled checks for deductible expenditures.
· Bank statements and canceled checks for 3 years
· Insurance policies, including car, health, life, rental and/or home-owners insurance
· Pension plan or retirement plan statements
· Mutual fund or other investment annual statements
· An inventory of the things you own, or at least records of major purchases
· Password list for important accounts (store in a secure location)
· Inventory list of items in your safety deposit box or locked box (see below)
· List of bank/credit union, and credit card accounts
· Loan Statements and payment books
Keep these in a safety deposit box or a locked fireproof box:
· The deed to your home or other property you own
· The title to your car
· Birth, marriage and death certificates, passports, and Social Security Cards
· Divorce and property settlement papers
· The original copy of your will, with another copy at home
· Leases
· Stocks and bonds (if you own the original certificates)
· Military discharge papers
· Powers of attorney/Advance directives
What to Toss/Shred:
· Canceled checks or nondeductible expenses, after 3 years
· Expired warranties
· Pay stubs, after reconciling W2
· Bank statements – after 1 year, unless needed to support tax filing
· Investment Statements – shred monthly statements; keep annual statements until you sell the investments
Reach out to one of our fiducariy advisors for access to many of the tools and resources that you need to stay financially organized at:
Call: (480) 364-7401 | Email: hello@cognisgrp.com | Zoom Meeting
1 F. M. Alexander