If you are like so many of us right now you might have seen (or at least heard of) the new Netflix craze, Tidying Up with Marie Kondo. Each episode focuses on world-renowned tidying expert Marie Kondo helping a family declutter their homes to choose joy. Watching the show you see how the process of organizing and simplifying the home brings clarity and peace to the family. This concept has us thinking – do your personal finances need some tidying up? If so, it is time organize and set a course to achieve financial well-being in 2019.
According to the Consumer Financial Protection Bureau (CFPB) financial well-being contains these four components:
- Control over day-to-day and month-to-month finances
- Capacity to absorb a financial shock
- On track to meet your financial goals
- Financial freedom to make choices to enjoy life
What are the steps you can take to achieve financial well-being?
Set a budget to take control over day-to-day and month-to-month finances
At Method we are a firm believer that everyone, no matter how much money you make, needs a budget. It is important to know where each dollar is going, and if there is money left over that it is available for funding your financial goals. One of the first questions clients have when discussing cash flow is – how much should I be budgeting for each expense category? Every situation is different, but the best place to start is to itemize your fixed monthly expenses (mortgage, insurance, loan payments, etc.) then list out the categories for your variable expenses (the expenses that change every month and can be changed if necessary) which includes groceries, dining out, entertainment and shopping. Track your expenses on a monthly basis and categorize them appropriately. Three months is the average time it takes most clients to establish and begin to stick to a budget. Remember, like your financial plan your budget will not be static so allow yourself some breathing room and flexibility.
Create an emergency savings fund so you have the ability to absorb a financial shock
The general rule of thumb is to have three to six months of spending held in a savings account for an unexpected life event. This is one of the first goals everyone should plan for and implement. The funds should be held in an account where you can quickly access it, but not too easily. For most clients we recommend that they open a savings account at an institution that has a high-interest bearing account.
Develop financial goals and track your progress
What is important to you? What goals do you want to plan for? Create goals that are short-term (ones that you would want to achieve in two years or less) and also goals that are long-term. Make a goal chart or implement a financial app to track your progress. It also helps to break down longer-term goals into smaller goals to see your accomplishments. Even your long-term goals require action now such as setting aside savings and adjusting investments to create good financial habits.
Implement a plan to achieve your goals allowing you to have financial freedom to enjoy life
Isn’t that what we are all looking for? What does financial freedom mean to you? It may mean that you want to hang up your demanding job and find another career. Maybe it means paying off your mortgage and living a debt-free life. This is your life and it is time to design and put the steps into place to not only dream, but to work towards your best financial future.