MoneyNav Bootcamp: Aligning your Budget & Goals [Part Three]

Did you know that April is National Financial Literacy Month? Its purpose is to bring awareness to the importance of financial literacy and educate people on the significance of establishing and maintaining healthy financial habits. As financial advisors, we wholeheartedly support taking these steps, and what better time of year than FLM to start working out your finances?  Taking the leap towards financial freedom can be daunting, but it doesn't have to be difficult. Over the next few weeks, we will break down the Financial Literacy Month’s (FLM) "Thirty Steps to Financial Wellness" into a four-part series we're calling MoneyNav Bootcamp. These posts will outline basic steps to take in order to begin revamping your financial life, managing challenges along the way, and staying motivated. Let’s get started! 

Quick Recap

Time flies when you're working hard, and we have definitely been flexing our financial muscles, sailing right into week three! Despite your amazing progress, there are still challenges to face. Don’t forget to reflect on what you have accomplished so far and get yourself in the right mindset to focus on this week’s set of tasks.

Last week we defined your baseline financial picture, reviewed your debt test, and determined SMART financial goals for your future. These steps are paramount to successfully completing week three, so let’s get those financial endorphins pumping!

Week #3 of MoneyNav Bootcamp: Keeping your budget and goals in sync

We are more than halfway through Financial Literacy Month, and this week is about zeroing in on your personal budget to ensure that it supports your goals, commitments, and financial future.

Step #15 – Secure your financial future: What comes to mind when you think of retirement? Do you think about how much time you will have to perfect your golf swing? The business you have always wanted to start? Or how about all of the places around the world you still have yet to experience? Whatever you imagine your ideal retirement will look like, you should ask yourself: have I successfully prepared?

Consider all of your available resources. For example, do you participate in your company’s retirement plan? Not only does this make saving for your future automatic, but if applicable, you can take advantage of matching contributions. Simply put, an employer will sometimes offer a benefit wherein they “match” your own retirement plan contribution. Formulas can vary, but typically you’ll need to save at least X percentage of your paycheck, of which your employer will then match Y percent. Essentially, if your employer does offer a match and you’re not using it, you are leaving free money on the table.

Two other important ideas you should keep in mind: your specific long-term saving strategy, and your tolerance for risk when it comes to investing. Take an active role in managing your financial future so you can be prepared for the ups and down's of the market, and keep your investments on track. However, no one expects you to know everything, so reach out to your HR professional or a trusted financial planner with any complex questions you may have.

If you need more assistance preparing yourself for retirement, take advantage of our retirement checklist. It goes over the different aspects you should consider while planning for retirement, such as your lifestyle, finances, estate planning, healthcare, and how your investments today may impact your retirement in the future. While you may be tempted to withdraw your funds early, but don’t touch them! Depending on your retirement account, you may have to pay taxes on top of a hefty penalty fee, so we strongly urge you against pulling from your investments early.

Step #16 – Make a commitment:  Commitment is a recurring theme throughout this challenge, and for good reason. No matter how much you accomplish, there will be days when you feel like giving up. However, remember your commitment to achieving financial stability. Besides using your financial list of priorities to help you save responsibly, you can also let your friends and family know how committed you are to your goals, and recruit their help with staying on track. Print this “I Am Committed” certificate that states the item you are saving for and how much you are going to commit to your saving goal. This form of accountability creates a behavioral driver for us to work hard and complete our commitment.

Step #17 – Save for your goals: Last week we focused on prioritizing, and setting SMART short-, mid-, and long-term goals, but you’re probably wondering how you’re going to actually find the money to put towards all of this. For example, if your goal is to have $5,000 saved for a vacation next year, you’ll have to figure out how much per month you’ll need to save to reach that goal. So, how do you go about doing that?

• Implement automatic savings: Direct some of your funds into a savings account, so it creates an automatic process and allows you to rest assured knowing that your money is there when you need it.
• Turn your hobby into extra cash: Do you have an extra-curricular activity that can bring you additional income? Use your skills and talents to make some extra cash so you can reach your goal even faster.
• Learn to let go: Do you have a lot of stuff? Some of those things sitting in your basement, attic, or garage are probably worth a pretty penny. Hold a yard sale or sell your items on eBay or to a thrift store, and add the money you collect to your savings goal.
• Cashing in your gifts: The best kind of gift is cash because it’s absolutely free, but if you get money as a gift don’t be tempted to spend it, put it right into your savings. And what about that $50 Outback Steakhouse gift card that you are not exactly thrilled about? Use gift card reseller sites to trade your car in for cash, and then drop that money right into your savings account.

Step #18 – Where does all of your money go:  You know about the monthly expenditures, but what about the other little expenses that occur every day? Those types of incidentals are called variable expenses, like a daily cup of coffee, weekly happy hours, and spur-of-the-moment travel. These can add up, and whether or not you already budgeted for them, you still need to evaluate if you can afford them, and if so, how will they impact your financial goals?

Use MMI’s Record of Daily Expenditures so you can see where your money is going, and if some of that money can be allocated to your goals instead. After using the Record of Daily Expenditures, you can also use financial tools that can automatically track where your money is going and how each purchase is impacting your budget.  

Step #19 – Identify and document fixed monthly expenses: In the last step, you determined which variable expenses are putting a strain on your bank account and where you can cut back. Now you need to list your fixed expenses. Fixed expenses are bills you are consistently expected to pay on a regular basis such as rent, car payments, and credit card payments. Knowing your fixed expenses will help you know how much of your income has to go to maintain your needs. If you need help breaking down and organizing your fixed finances then use MMI’s Fixed Expenses Worksheet.

Step #20 – Identify and plan for periodic expenses: You are almost done with breaking down every expense you have, but you have to think about your periodic expenses. These are costs that come annually like holiday shopping, tax debts, or premiums like car insurance.

To determine if you will be spending the same amount this year, think about what you spent last time.  For example, if you spent $400 on holiday shopping then you should be prepared to spend that much again. However, keep in mind that some periodic expenses, such as car insurance, come semi-annually or quarterly. Don’t make the mistake of inadvertently hiding expenses from yourself so keep a list of these expenses that you know will pop up during the year. Here’s a list of some examples:

• Back-to-school expenses
• Auto insurance premiums
• Holiday and birthday expenses
• Tax debts

Since these bills don’t occur on a regular basis the best course of action you could do is open a savings account just for these expenses. Come up with an educated guess of what you will need to spend in this area during the year, and divide the total amount by 12 so you can save that amount each month; for example:

$800 tax bill / 12 months = deposit $67 into savings each month

Once you know how much you need to dedicate to those expenses, inquire with your bank to see if you can link those bills to your savings account so you know that they are being paid, but not pulling from the fixed monthly bills.

Step #21 – Document your spending:  Now it’s time to bring everything together, take your fixed, variable, and periodic expenses, and input the data into this Expense Worksheet, our Spending Plan, or any other budgeting tool you prefer, so you can see the entire picture of your spending. This will help you identify the expenses that can be reduced, and also curb impulse spending. This step is all about tracking where your money goes and determining if some expenses can be eliminated altogether.

Take this time to create your personal budget. While it may seem like every step is about saving money, it is really about being able to enjoy your life comfortably without breaking the bank. Tracking your spending is probably one of the hardest parts you’ll encounter during this challenge, and we know that it can be tedious, but it will pay off in the long run when you don’t have to spend time questioning every purchase, or wondering whether you have enough money to do something fun.

Savings should be just as automatic as allocating funds to pay your bills. Some key areas to consider creating dedicated savings include:

• Emergency Funds
• Long-term Savings for life events such as college
• Retirement Savings

After everything is said and done, you will be able to know where all of your money goes. Make sure you do quarterly audits so you can reevaluate and be on track for future financial success. Once this process is complete, any extra money you have leftover can be used freely since you’ve already covered the necessities.

MoneyNav Bootcamp Week #3 Round-Up

Great job on knocking out week three, now time for the recap:

• Step Fifteen - Secure Your Financial Future
• Step Sixteen - Make a Commitment
• Step Seventeen - Save for Your Goals
• Step Eighteen - Where Does All the Money Go
• Step Nineteen - Identify and Document Fixed Monthly Expenses
• Step Twenty - Identify and  Plan for Periodic Expenses
• Step Twenty-One - Document Your Spending