About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area, that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual financial planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the The DREAM Financial Planning Process ™ to help our clients achieve their goals.
Your money fuels your life, allowing you to live comfortably, have meaningful experiences, and support loved ones. On the flip side, however, you may lack the means to afford certain luxuries and accomplish lifelong goals, like paying for a child’s education, traveling to bucket-list destinations, or simply having a peaceful retirement.
While you may have previously taken a look at your financial picture, your circumstances and even your goals will change and evolve. Reviewing your finances regularly enables you to adjust your strategies, review your objectives, and make sure you’re on the right track. If you have yet to take diligent steps to organize your finances, it’s never too late to start. Follow these five simple steps to make the most of your money — and start on the path towards your goals.
Step #1: Review Your Financial Picture
To begin, start by gathering a complete overview of your current financial situation. Understand how much money you have coming in and what your fixed and variable expenses are. List out things like your rent, groceries, and other bills. Next, get an idea of your spending patterns — what you spend the most on each month (e.g., eating at restaurants, buying clothes), how much you’ve been saving and/or investing, and how much you’ve been putting towards debt repayment.
Throughout this process, you’ll get an understanding of where you can cut back. Can you spend less on restaurants? Can you buy one less coffee a week? Can you cancel a subscription to a service you no longer use? This process enables you to understand your patterns, weed out basic ways to spend less, and see if you’re on track towards any pre-established goals.
Step #2: Formulate Goals
Understanding your priorities and goals is essential to developing a strategy to manage your money. Do you want to eliminate credit card debt or pay off student loans? Have you not yet started to save for retirement? Are you planning a wedding? Is there an upcoming trip that you need to budget for? Do you want to aim for a higher salary?
Taking a look at what is on the horizon for the new year is an excellent place to start. It can be easy not to factor in “small” expenses, such as a flight ticket home for a holiday, but these expenses can add up. Thinking both short- and long-term is vital when identifying your goals.
Step #3: Create a Budget & Plan
Now that you have an understanding of your expenses, the areas in which you can spend less, and your goals, you can develop a budget and plan accordingly. Perhaps you want to start investing more and spending less on things like clothes and dining out. Or, maybe you want to save for a vacation. No matter what the case is, it’s essential to know how you’ll allocate your incoming dollars. With a budget and plan, you’ll be equipped to make the right choices when it comes time to making spending decisions.
Step #4: Automate Your Finances
Managing the responsibilities of day-to-day life is time-consuming. To maximize efficiency, set up automatic payments and transfers as an easy way to stay aligned with your goals. For example, you can set up a plan to put a specific amount of your income towards your IRA, savings account, or debt every month.
Additionally, you might choose to automate your recurring bills like your internet or heat. Not only does this ensure that your bills get paid on time, but it holds you accountable as you work towards specific goals.
Step #5: Monitor Your Finances
Establishing a plan and automating your finances will make it easier to organize all the different aspects of your finances. However, there are other components of your financial situation that are not fixed and cannot be automated. For example, spending decisions are up to your discretion every month, though you can use certain apps to keep track of your spending. You might receive a salary bump or a bonus, in which case you might decide to start investing more or paying down debt.
Taking a regular look at your accounts and seeing if you’re on track towards your goals is critical. Setting up a time every week or every month is one way to make sure you’re consistently reviewing your situation. Besides, monitoring your finances can help you identify any credit card fraud or merchant mistakes promptly.
Managing your finances is an ongoing process. Your strategies, goals, and plan may look different as you move through new life chapters, but you can still take steps today to plan for the future you envision. Visit our website and try our free budgeting tool on the homepage to help you track your finances and start planning for your future.
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