Staying well informed about your income, expenses, savings and investments requires taking a close look at your finances periodically. Ask yourself these questions: Do I want to feel more confident in my financial life? Am I motivated to make better financial choices?
While evaluating your finances can at first seem like a major chore, it can greatly enhance your sense of wellbeing and ability to make good financial decisions, which can reduce stress. These tips can help simplify the task. “Don’t burden yourself by trying to do everything at once, which can be demoralizing,” says Karen Burns, head of goals-based wealth management consulting, Merrill Lynch. “Start with small, incremental steps and reward yourself along the way. Get others involved and you can even make the process fun.”
Start with small, incremental steps
and reward yourself along the way. Get others involved and you
can even make the process fun.
These seven tips can help you better organize your finances.
satisfaction of “finding” money
If you have a seldom-used phone line or multiple gym memberships, you’re practically throwing money away. Start by thinking about dropping just one unnecessary item, Burns suggests. Once you see how that extra cash can slowly add up, try cutting another extra expense. Over time, this process could ultimately yield hundreds or even thousands of dollars per year in savings.
Put your found
money to good use
When you eliminate an unnecessary expense, or receive extra cash from a raise, bonus, tax refund or gift, consider using the money to increase your retirement plan contributions to either a workplace plan or an IRA. Many people aim to contribute at least 10% of their salary to retirement savings, but if you can’t stretch to meet that target immediately, you might try to increase your contributions by 1% or so of your salary every year until you get there. Contributing at least enough to take advantage of any matching contributions from your employer to your 401(k) plan, for example, is a smart way to boost your savings.
If you have a 529 education savings plan account or would like to open one, that could be another possible destination for extra cash.
Lastly, you may wish to use a portion of your “found money” to pay down high-interest credit card debt, treat yourself to a special purchase, or send money to someone who could use or deserves it—payment apps such as Zelle® can simplify the process.
progress toward a goal
“Addressing specific goals, one by one, can give you a clearer and more optimistic financial outlook,” says Burns. Consider listing important short- and long-term goals, then check your progress over time to see if you are on track to meet them. If you are not, you may need to make changes to your investment strategy, like increasing the monthly amount you save, or changing your risk-reward outlook, so that you are better positioned to pursue your goals.
Over the course of your career, you may end up with multiple 401(k)s or IRAs in different places. Having so many accounts can make it difficult to keep track of your assets and feel comfortable you are appropriately invested to pursue your retirement goals. Account consolidation might help you keep your retirement plan on track and simplify your investment management. Consider combining IRAs of the same type with one institution.
“Addressing specific goals, one by one, can give you a clearer and more optimistic financial outlook.”—Karen Burns, head of Goals-Based Wealth Management Consulting, Merrill Lynch
Also, review any 401(k) accounts you may still have with former employers. Learn more about 401(k) distribution options and other considerations when changing jobs. You have choices for what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) account from a prior employer to a 401(k) plan at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.
Having multiple credit cards can make it not only harder to track and control spending and stay within your budget but also easier to build up high-interest debt. If you have several cards, evaluate which ones work best for you (the cards with the lowest interest rates or the best rewards, for example) and make them your primary cards. Keep the other cards for emergencies, or for limited use, but try not to build balances on them. And if a particular rewards program isn’t working for you, perhaps change to another rewards card that’s better suited to your lifestyle.
beneficiaries and addresses up to date
It may seem like simple financial housekeeping, but it’s easy to forget about policies or accounts that were set up years earlier. It’s crucial to keep addresses up to date for:
- Financial institutions
- Insurance companies
- Former employers, if they have a pension, a 401(k) or health care benefits for you
It’s also a good idea to periodically review the beneficiary designations you’ve made, especially if there have been family changes, such as a birth or a marriage. Once you determine that the information is up to date, simplify the process for next time by keeping a dated copy of the current information and signing up for online access, if available, to make any future reviews or updates easier.
your finances a family affair
Encouraging family members to engage in financial matters may have benefits beyond saving money. It can foster a sense of family unity around a goal and help set your kids on a path toward financial responsibility. To make the process fun, you might set up brief, regular family meetings to review progress. Consider giving small cash rewards to those who find unnecessary expenses to eliminate. If your kids are old enough, discuss their goals and help them figure out how they can pursue them.
A financial review can help you get an idea of where your money is going, to see where changes might be made to your budget, savings and investments, and to let you plan with greater confidence that you are on track to reach your goals. The key to doing this successfully is to start small, notes Burns. “It’s empowering,” she says. “Once they’ve achieved that first step, people tend to want to take on the next thing, and then their List of things to do starts to become less of an annoyance and more something they’re motivated to do.”
3 Questions to Ask Your Advisor
- How can I determine the best way to organize my finances based on my specific circumstances?
- Are there any tools and resources I can use to create a personalized budget and spending plan?
- How can I save more to help me pursue my financial goals?
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