How to Get Your Financial House in Order
September. Back to school. Back to reality. Back to life. If you let yourself slide when it comes to financial matters over the summer, you’re not the only one. It’s hard to focus on things like whether you should swap health insurance plans come open enrollment in October or if you should refi the mortgage because interest rates have dropped when all you really want is another Aperol Spritz by the pool. But the chill in the air is here to remind us that, yes, we need to focus. The good news is that getting your financial house back in order isn’t all that difficult.
Here are the top 5 moves to make sure you’re heading in the right direction:
1. Revisit your goals. You may have heard a lot of noise this summer about buying the latte or not buying the latte. The latte (which I’ll come back to momentarily) isn’t going to make or break your financial success. Instead, start with the big stuff. What do you want and are you on track to get it? Whether you’re trying to build (or rebuild) an emergency cushion, put away money for a downpayment or college tuition, or—like every single one of us—save and invest for retirement, the questions are: Do you have a path to get there? And are you making progress on that path? To get to any goal, break down the steps into benchmarks then plot your way there, patting yourself on the back as you close in on the blue ribbon.
2. Get out of your own way by automating. Human beings are bad with money. It’s not completely our fault, but largely that we are wired for instant gratification. That makes doing things that require delaying gratification—like saving and investing for tomorrow—hard. Technology can help. The reason 401(k) plans work is because you set them up and then the money gets zapped from your paycheck before you can see it or touch it or spend it. It disrupts human impulsivity. And if you want to grab those dollars before retirement, there are nasty taxes and penalties wagging their fingers and reminding you to think about what you’re about to do. The key is to replicate this automation in other places in your life. If you have a health savings account at work, you may be able to make similar contributions through payroll deduction. If not, you can contribute to HSAs, IRAs, 529s by setting up auto transfers from checking. If you’re not someone who will regularly rebalance your investments, put your money in a target date or balanced fund that will do the work for you. Auto-paying select bills is a big help, too. (Just watch out for your credit card expiration date if you tie payments to your plastic. You’ll have to update your information when that happens.)
3. Hold your own State Of The Union. If you’re not an island of one and have a spouse or a partner, you should be talking about your finances on a fairly regular—say, once a month—basis. It doesn’t have to be formal, though some couples choose to do it that way, but should cover: Where we are? Where we’re going? How we’re going to get there? (and, like any good scrum) What are the obstacles in our way? If you can’t remember the last time that you and your significant other had a conversation like this, then scheduling it is a good idea. Pick a time when neither of you is likely to be stressed out, pour yourself a glass of wine (one, please) and have at it. And if your relationship is one of those in which talking about money makes you break out in hives, consider scheduling a session with a financial advisor to walk you through it. There are fee-only advisors willing to work by the hour these days, so you don’t have to add another person to the payroll full time to make it happen.
4. Get opportunistic. Fall, as I mentioned before, isn’t just back to school season, it’s open enrollment season at many of the country’s employers—as well as at Healthcare.gov (where it opens November 1) and Medicare (October 15). Many employees don’t take advantage of all the benefits available to them. They leave matching dollars untapped in 401(k) and similar retirement plans. They don’t capture incentives (often cash) on the table for signing up for the health savings account that goes along with their high deductible health plan. They don’t enroll in the flexible spending accounts that could save 25% off the cost of many healthcare expenses. Make a note on your calendar for the beginning of October to talk to the benefits folks (or your supervisor if you don’t work for a company with a benefits department) about what’s available and what you need to do to get it.
5. Consider that latte. Finally, there’s that latte, which–as I explained in this post, The F*ing Latte is a F*ing Metaphor, on my website HerMoney.com–is really a stand-in for your discretionary spending. The point is not that you should buy the coffee or shouldn’t buy the coffee, just as it’s not that you should take the Lyft or shouldn’t take the Lyft. It’s that your money is a limited resource and every once in a while, it’s worth taking a look at how much is going out to what so that you can become a little more conscious in your spending. Finally, take a look … maybe before your next take that hit of Pumpkin Spice.