It’s hard to overstate the importance of a sound financial strategy — your current spending + saving habits determine the success of your long-term goals. Think: buying a home, paying down debt, or having a fab retirement.
Not sure where you stand? Here’s how you can check in on your financial health:
Step 1: Get organized
Not unlike cute coffee mugs, financial documents collect surprisingly quickly over time. Make sure you know where the following items live:
- Financial account statements
- Bills + receipts
- Checks, pay stubs, and employee benefits
- Insurance policies
- Tax statements + returns
- Mortgage and personal property records
- Retirement plan and investment statements
Step 2: Understand your habits
Income and lifestyle changes over time — and so does your spending.
The key to staying on track is to regularly audit your income and expenses
and adjust them based on your long-term financial goals. Track your spending for three to four months + divide them into one of five bins:
- Essential: Rent, food, and other necessities
- Lifestyle: Expenses that bring joy (aka, the fun stuff)
- Fixed: Non-essential monthly expenses (think: subscriptions + memberships)
- Variable: Sporadic or annual expenses (insurance premiums, new tires, etc.)
- Savings: Money set aside for cash reserves, retirement, and other long-term goals
Remember, the most effective financial strategy is the one you can stick with.
Photo provided by Richardson Private Wealth Advisors
Step 3: Manage your expenses
Next, assess your habits to find an expense management strategy that works for you. Psst... this will help set you up to minimize your expenses + plan for a major purchase .
Here are a few common strategies:
- 50/30/20 method : A flexible way to allocate monthly funds
- Envelope system : A no-nonsense method to rein in excess spending
- Zero-based approach : Perfect for Type A personalities
The best method depends entirely on your habits — if you’re a chronic shopper, for example, the rigidity of the envelope system might help you curb those late-night sprees.
Step 4: Tap in a professional
Feeling overwhelmed? Want a second look? Consider working with a professional to streamline the process.
Pro tip: Check out these helpful (and free) resources breaking down market and economic insights + financial goals and priorities.