By Jim Beall
Beall Financial Planning
A good habit is worth a fortune. If you haven’t implemented these three habits in your life now is an opportune time to do so.
The first habit is to know where your money comes from and where it goes every month and year. Keeping your expenses lower than your income is the easiest way to becoming financially independent. If you don’t know where your money is going, you can’t control your costs or understand where you are taking the biggest hits to your finances.
I have advised individuals who have had monthly charges on their credit cards that they didn’t know what they are being billed for. You need to know your annual expenses like property taxes or a homeowner’s insurance policy. You need to know your quarterly or semiannual expenses like an automobile insurance policy. Then there are the monthly bills that we are all too familiar with.
Many people avoid this crucial step of knowing where their money goes because they believe they will have to sacrifice something important to them. In essence, keeping the current “you” happy and content is more real than the happiness of a future, financially solvent “you,” so your brain prioritizes the current you.
It is hard to say no to an existing opportunity when there is money in your account, and the insurance bill is six months away. It takes discipline and good habits to withstand the pressure of spend now, pay later.
One of the ways to help cope with this pressure is to be aware of your future expenses and to prepare for them using a personal finance program. I do recommend you take advantage of the technology available today and use one of the many programs available to help you monitor your income and expenses. The basics of the programs are easy to set up and use and learn where your money goes.
One useful program is Personal Capital – great for tracking net worth but they will try to upsell you their other services, which is how they can afford to offer their free tools. You can find them on the web at https://Personalcapital.com.
Another useful program is Mint – easy to use and quick to set up for managing your cash. Owned by the makers of Quicken. You can find them on the web at https//www.mint.com.
Next, there is Quicken – the granddaddy of personal finance software. It is a desktop program with various editions and price points. Easy to use and lots of reports available. You can find it on the web at https:www.quicken.com.
Finally, for the ready-made programs, there is YNAB or You Need A Budget. – Just what it says and is free to try for 34 days. A lot of people have had success with this program. If you need the constraints of a budget plan, this may be your best option, and it’s located online at https://www.youneedabudget.com/.
If you’re into do-it-yourself options, you can always create your own – pencil and paper work just fine, or you can use a spreadsheet on your home computer with software like Excel, which comes standard on many systems.
The second important habit is to take a cue from the government and automate your finances such that you make sure you get paid first. Every paycheck, the government gets its cut first then the remainder is your income that is used to cover your expenses. You don’t see it; FICA and federal and state withholding just happen, and they are line items on your pay stub. Your first two bills every paycheck should be the ones you pay to your future self. The first bill to your future self is for your future retirement. This can take the form of an automatic contribution to your retirement plan at work. If your employer doesn’t have a retirement plan, then you should be funding your IRA or Roth IRA with an automatic deduction from your account.
The second bill to your future self is to provide a short term safety net often known as an Emergency Fund. Once the Emergency Fund is fully funded, then you are building your savings for flexibility in your life. What I mean by this is having savings gives you the flexibility to take advantage of the opportunities that pop up in your life.
Both of these two payments to yourself should be automated. They should be like the social security taxes that come out of your paycheck, and they are deposited into your account without you having to do it manually.
The rest of your bills should also be automated as much as possible. Take advantage of automated payment plans or bill paying services that save you time and money.
Here is a real-world example that has saved my wife time–and my family money. The new services many grocery stores offer where you order online or through their mobile app and then pick up at the store have been a blessing for our family. We save time because we are not wandering around the store picking up each item and we save money by avoiding impulse purchases.
The third habit is less about money than it is about lifestyle, although it has a big impact on your wallet. You need a habit that keeps you physically fit. Walking is free, the bodyweight gym at Amerson River Park provided by the hard work of the Leadership Macon Class of 2017 is free, and all the other parks and sidewalks are free to use. Any number of sports and activities such as gardening are inexpensive.
You don’t need the right clothes or the perfect equipment; you just need to get physically fit. Be sure to talk to your doctor if you have a medical condition that might prevent you from doing certain activities.
What’s the impact on your wallet if all this is free to use, you ask? You will spend less on drugs and medical equipment, and you will be physically able to do more than those who aren’t fit–leading to more opportunities to do the things which bring you joy and happiness.
Next month: Getting out of debt.