7 Steps to Take Control of Your Finances
Melinda E. Adams
As we move into the fall months, many of us naturally turn our thoughts toward the year to come. Think about all the New Year’s resolutions people make (and usually fail to keep) every January. If you’ve been riding a financial roller coaster this year, you may be thinking about starting over with a strong, fresh way to manage your money in 2023. There’s only one problem with that idea:
by the time 2023 rolls around, you won’t be ready for it unless you’ve constructed that strategy in advance – or more specifically, right now.
Where do you start to take control of your finances? Many people tend to put the cart before the horse when they decide to get their finances in order. I’ll talk to clients who start the conversation with, “I want to save for retirement” or “I need to plan for my child’s college expenses.” While these elements make up parts of a comprehensive strategy, they’re not the starting point. Here are 7 steps to get started on a new you, new money management strategy:
Write down your goals.
One of the first things a financial planner would ask you is what you want your money/assets to accomplish. What do you want to accomplish in the next 5 to 10 years? What about your long-term goals? It’s easy to talk about general goals but get specific and write them down. Which goals are most important to you? How much will you have to save to achieve them? Identifying and prioritizing your goals will act as a motivator as you dig into your financial details.
Determine what you currently have.
To achieve your goals, it’s important to understand where you stand today. First, make a list of your assets including your bank and investment accounts, real estate and other significant personal property. Then, make a list of your debts: mortgage, credit cards, student loans—everything you owe. To determine your net worth, subtract everything you owe from everything you own. Ideally, this number is positive and growing. If this number is negative, then you have some work to do. Whatever the number is, you can use it as a benchmark to help you measure your progress.
Optimize your budget.
Your budget will give you permission to spend money on the things that are most important to you. If you haven’t created a budget, now is the time to start. You want to start with your recurring monthly essential expenses such as mortgage, insurance, food, transportation, utilities, savings funds and loan payments. Then, you will need to add any irregular and periodic items such vehicle repair/replacement costs, out of pocket health care costs and real estate taxes if you don’t escrow. Next write down nonessentials—restaurants, entertainment, clothes and other items that are nice to have but you could remove them from the budget if needed. Does your income cover your expenses? Have you included savings a part of your monthly budget? Budgeting will help you determine if what you’re spending your money on is in alignment with what is most important to you.
Create a debt management plan
Debt can hinder your ability to reach your financial goals. Some debt, like a mortgage, can work in your favor if you’re not overextended. It’s high-interest consumer debt like credit cards that you want to avoid. Try to follow the 28/36 guideline recommending no more than 28 percent of pre-tax income goes toward home debt, and no more than 36 percent toward all debt. Look at each debt you have and determine how you’ll systematically pay it down.
Know your retirement savings goal
Saving for retirement is important at any age and needs to be part of your financial strategy. The earlier you start saving, the less you’ll likely have to save each year. You might be surprised just how much you’ll need—especially factoring in potential healthcare costs. However, if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference. It’s so important to determine how much you will need and contribute to a retirement plan to reach your goals. Start by saving what you can and then gradually increase your savings rate as your earnings increase. Your future self will be grateful!
Understand your insurance needs
As you grow your assets, having adequate insurance is an important part of protecting them and your finances. We all need health insurance, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, the proper disability insurance policy can help to protect your future earnings and your ability to save for retirement. You might also want a supplemental umbrella policy based on your occupation and net worth. You should also consider your life insurance needs, especially if you have dependents. Review your policies to make sure you have the right type and amount of coverage.
Create or update your estate plan
At the minimum, you want to have a will in place that will name a guardian for minor children if you have children under 18. It’s also important to review the beneficiaries on your investment accounts and insurance policies to make sure they are up-to-date. I would encourage you to complete an advance healthcare directive and assign powers of attorney for both finances and healthcare. I would recommend working with an estate planning attorney to help you plan for complex situations and if you need more help.
Taking control of your money will help you get on the path to greater financial strength and peace of mind about your finances.
Whether you need to reduce spending and debt, increase your savings, or just be more intentional with your money, once you know where you are and where you need to go—you’ll have a sense of direction. Then take necessary steps to moving forward and tackle each one of your financial goals. A financial planner can help you build on your work if you want additional guidance, analysis, and direction. And if the time comes that you think you’ll benefit from the help of a professional, you’ll be that much farther ahead.
Melinda E. Adams
T: (210) 384-5393
C: (210) 701-9166
F: (210) 342-6460
Melinda Adams is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC (www.sipc.org). Supervisory Office: 10101 Reunion Place, Suite 300, San Antonio, TX 78216-4157 (210) 342-4141. CRN202507-2690162