Monday, June 24, 2019
Mid-Year Money Check-Up
We are officially in the final week of June and if you are anything like me, you are wondering where this year has gone. As we start to head into summer, I think it is important to take stock of this year thus far. Setting personal goals is important, but equally important is tracking those goals and seeing if you are making progress. When it comes to your money, a steady progression upwards is the goal. Today I want to go over what you should be thinking about as the first half of 2019 ends. I give you my Mid-Year Money Check-Up, let’s get started.
I start with this point for a reason. Dave Ramsey once said that personal finance is 10% head knowledge and 90% mentality. What that means is that you don’t need to hold an economics degree to win at money. All you must do is be in the right head space and make smart decisions. How is your money mentality so far this year? Do you feel like you are making progress? Do you feel stressed every month? Do you feel like giving up on living your best money life? Ultimately how you handle the ups and downs of your weekly life will determine your money success. It sounds funny, but the micro decisions you make daily really mean a lot. To buy that dress or have the drinks with the boys. They seem small, but they create an overarching theme for your money. If you are wary on a regular basis when it comes to your money, you need to address it. Diagnose the symptoms and get to the root of the issue. An example would be living paycheck to paycheck. If that’s the case, you either make too little or spend too much or both. Brainstorm your money mentality. Your success depends on it.
A big factor in your money mentality is the issue of cash flow. People underestimate the importance of money in and money out. If you cannot master the personal checking account, you will fail with money. The reason this is so important is that it is ground zero for your personal financial plan. A surplus is needed every month. This is non-negotiable. You cannot save money if there is no money to save. Seems simple right? Yet many cannot grasp this simple concept. As mentioned, if you are living paycheck to paycheck, it needs to be addressed. I can think of very few things more stressful than living this way. I know, I’ve been there. There are only a few possibilities that lead to this. Either you don’t make enough money, or you just plain spend too much, or both. Taking your monthly expenditures and eliminating the unnecessary ones will go a long way to help. Sadly, many of us just don’t make enough money. This problem is tougher to solve, but it can be done. Picking up more shifts, working part-time, and upgrading your skills, all go a long way to making your paycheck bigger. This is also where using a written budget will help greatly.
As mentioned, setting and reviewing goals is very important to your personal financial plan. You will need to challenge yourself in order to grow and that means addressing your finances regularly. Have you tracked your progress towards your goals thus far this year? Are you on track or have you had a few setbacks? If you have had a setback, what was the cause of it? An example would be that a broken-down automobile caused you to slow down debt repayment. If a fully stocked emergency fund existed, this setback could have been cash flowed and debt payments not been altered. If something like this occurred, we now know the importance of a fully stocked emergency fund. Use this as a teachable moment and vow to work towards that goal. One of your goals may be just to be able to set realistic goals. There is nothing wrong with that, so do not get discouraged if you are at a loss for what a financial goal should be for yourself.
Many people’s goals center around debt. Getting out of debt and staying out of it should be a goal of everyone. Again, it may not be easy, but it can be done. Again, this area highlights the importance of cash flow. You need to have a positive monthly cash flow or you will go into debt. You also need to have a positive monthly cash flow to get out of debt because it is this extra money that will be put towards debt repayment. I recommend using the debt snowball method, meaning start with the smallest debt first and then knocking them out one by one. If done correctly you should have only 1 or 2 debts in a short period of time. The money applied to the small debts can then shift towards the larger ones as you attack them aggressively. This method gives you some quick victories that will propel you forward, and it was how I was able to get out of 50K of debt in a short period of time. Make debt elimination a priority moving forward.
We spoke about it earlier, but one of your goals should be to have a fully stocked emergency fund. Through personal experience, I know this well. I have had to dip into my emergency fund this year. It hurts seeing my savings balance drop, even a bit dramatically. It is now my goal over the course of the rest of the year to replenish this fund and get back to where I was. It is far better to have that goal than to use credit to fill the gaps. Most experts will say that you should have a 3-6-month emergency fund. Start off by saving a mini-fund, even $1000. Once this is achieved you have a decent amount that can handle most of life’s mini-emergencies. Use that victory to gain ground on getting your 3-month fund. I believe that one should not stop once the 3-6-month fund is achieved. Getting to a 1-year emergency fund is an amazing feeling and I highly recommend everyone makes that a goal of theirs. There is no worse feeling than to be accomplishing your goals of being and staying debt-free, only to have an emergency throw you back into debt. Vow to make a fully stocked emergency fund a priority of yours.
The Summer Months
We all love summer, but with summer brings beach days, patio beverages, barbeques, and road trips. These activities are not free, so diligence is needed. While it is tempting to take off long periods from working and replace it with long periods of spending money, make sure you have a game plan for this. While I would never say someone must not have fun this summer, some of you really shouldn’t. If the money is not there, it just isn’t there. It might serve you better to pick up extras shifts this summer from all the people off on vacay. It might serve you better to have a few staycations or enjoy the local activities instead of heading out of town. It may serve you best to continue with your debt and savings plans and not let summer get in the way. I don’t know what the answer is for you, but it is important to examine what a long fun summer might do to your financial plan.
The Rest of 2019
What do you want to happen before the end of this year? It will be 2020 before we know it and setting a 6-month goal is an important step to making your dreams come true. I think an admirable goal for the rest of this year would be to reduce consumption. One thing about myself I have noticed is that I have recently gone out more than usual. I can blame the long Toronto Raptor playoff run for that, but the fact remains is that far too much money was spent. Over the course of the rest of the year, vigilance will be needed to curb that trend, so that is a goal of mine. One noble goal you might have over the rest of the year would be to begin saving and investing your money. Starting from the base budget and finding a surplus will allow this to happen. I will let you know a little secret about investing your money. It is not nearly as complicated as many make it out to be. My industry thrives on making investing seem like rocket science when it is closer to finger painting. The key is to save money, pick the right vehicle to put the money in, and picks funds according you’re your risk tolerance and time horizon. After that, put money in on a regular basis. The last part is the most crucial. LEAVE THE MONEY ALONE! It won’t grow if you are touching it all the time. You will need to invest your money if you ever want to be financially independent, so making that a goal for this year would be quite prudent.
What you do beyond the rest of the year is important as well. If you take anything from this post, I want it to be this. I want you to have a long-term outlook on life. What I mean by this is that we need to stop living completely in the moment. Sure, enjoying the randomness of daily life is an amazing thing. A beautiful sunset, meeting someone new, a random adventure. They are all beautiful things. Nowhere in that did I mention spending every penny we have, going into debt or not protecting our wealth and trying to make it grow. Dave Ramsey calls it “Crock Pot Mentality.” What this means is you get the recipe, (the financial plan), and the ingredients, (debt freedom, positive cash flow, saving and investing), and let that bad boy simmer over time. The is the recipe for wealth. Want to live in the now? Don’t we all! My recommendation is this. If you want to live in the now, it’s got to be part of the plan, meaning the budget. Most people can’t afford to live completely in the now. If that’s the life you want, you better make a lot of money. Go to your local bar on any given afternoon and you will find many elderly people who are guilty of living in the now. Make it a goal not to be one of those people.
I hope that 2019 has been a year of growth so far for you. If it hasn’t been, it’s not too late to turn it around. Take some time to map out the rest of the year and discover what’s financially important to you. I promise you won’t regret doing it.
“By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” – Confucius
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