Congratulations, you are on the money detox train going full speed ahead! You now know more about your cash flow, and have hopefully taken steps toward saving more money and spending less on “stupid stuff” as my husband loves to call it. It’s so important to know where your money is going to you can get back in control of it.
One family was spending over $3,000 a month on food. They were spending a mortgage on food, and it was no wonder they had to declare bankruptcy a few years ago and are back in debt. Another couple was spending $1,000 on wine each month. Now I love my wine, and cannot wait until I can drink some good vino after having my baby, but if your wine budget is 10% of your income, something is wrong. But neither families would even know they were overspending so much if I didn’t have them go through their expenses.
So Month 1 is taking care of your cash flow, and now you will go through it every month when you sit down to review your money. This week we will go through your 4 steps in Month 2 that focuses on your finances and investments. And without further ado:
Month 2: Finances and Investments
- Week 1: Go through all your different investment accounts. Sit down and put together a spreadsheet showing all of your accounts and categorize them as: tax-deferred (or retirement accounts), taxable, cash accounts, insurance policies, trust accounts, and such. How much are you contributing to your various accounts? Is there room to increase your contributions? Make sure you aren’t putting all your savings towards your retirement accounts. You need some money in your taxable and bank accounts to insure you have a good emergency fund. One couple contributed the maximum they could to their 401(k)s, but they never had enough cash on hand for emergencies and basic living expenses. Hence, they racked up the debt pretty quickly and had trouble getting out of it. I love saving as much as you can in your retirement accounts, but not if it leads you into massive credit card debt.
- Week 2: Review your risk tolerance. This is very important and even more important if you are in a relationship and your hubby does all the investing. Make sure your risk tolerance is heard and taken into account. To ensure your voice is heard, attend all advisor meetings and phone calls. You don’t want to be surprised when your daughter is about to attend college, yet half of her 529 plan is gone because of too aggressive investments. The only way to prevent that is to be more proactive with your family’s investments.
- Week 3: Analyze your current investment’s allocation. How much of your money is sitting in cash, invested in stocks, and invested in bonds? Now that you’ve gone through your risk tolerance, make sure your allocation better reflects your feelings on risk. Do you have a big expense coming up? Do you need to have more cash on hand for it?
- Week 4: Track your various accounts value. You want to know if your accounts are going up from your contributions or because of investment growth. If they are going down, is it from investments or from withdrawals? Because I am “Not Your Father’s Advisor,” I will let you in on a secret, most advisors don’t want you to know your accounts values month by month, year by year. I hear from a lot of women that their advisors won’t share with them their year-end values. This is because their advisors are hiding them, they don’t want you to know that much, which is the opposite of what I represent. So if you are sick of not knowing the truth about your accounts, schedule a quick 10 minute call with me by clicking below:
And next week we will finish the last 2 steps to tackling your money and telling it whose boss!
Jessica Weaver, CFP®, CDFA™, CFS®