Getting Financially Fit, Part 1: 8 Tips to Freedom
When it comes to being financially fit and independent, it is simple. The difference between the amount of money you spend, and the amount of money you save is your “freedom.” So how can we find that freedom?
1. Save more effectively. Taking advantage of the full company match from your employer retirement plan IS FREE MONEY. No financial advisor can give you a 100% return instantly on your contribution. Also, considering contributions to a tax-advantaged account like a Roth IRA can give you multi-purpose savings for retirement, emergency funds, and kids’ college. Contributions to a ROTH can be taken out tax free and penalty free at any time, and certain exceptions on the gains, such as qualified college expenses, are exempt from withdrawal penalties. In retirement, there are not required minimum distributions from a ROTH, so it can continue to grow tax free, if you are looking for a way to pass money to your beneficiaries. Talk to your tax preparer to see if you qualify to make ROTH contributions, or if you could do backdoor contributions, if your earnings are too high.
2. Figure out and automate your budget. A great place to start is by visiting the Calculators & Resources at www.schwabmoneywise.com. In the beginning, this exercise may seem stressful, but without a concrete picture of your situation, you cannot improve it. Most personal finance software can download your bank account, debit, and credit card information, and can help categorize those expenses so you can create reports to get an eagle-eye view. Some financial advisors have software that can also help you with this process. Keep a “note” in your smart phone or a little notebook to track your cash expenses and create a separate account in your software to track cash manually.
3. Eliminate that which does not serve you. Did you ever get a retail credit card for the 10 or 15 percent off? Do you use it regularly and pay it off each month? Many of those cards charge high interest rates and get added to the revolving credit on your credit report. Under federal law you can request your credit reports by all three credit bureaus once per year by going to annualcreditreport.com. This is the only official site explicitly directed by the US Government to provide them. Get rid of the albatrosses and dead credit cards. You actually have to contact the company to close the card, don’t just cut them up!
4. Is it time to get rid of the clutter in your life? Donating clothes you haven’t worn since 2002 can give you a tax deduction, shredding old papers you don’t need gives you space and clarity, selling items online that have been in your storage… there are so many things that can make you feel good, organized, and possibly even put some money back in your pocket.
5. Get rid of major expenses you don’t need. Again, this is a personal decision, but do you spend money on things that do not serve you? So why are you doing it?
6. Make goals that are achievable. Set milestones that you can look at in a week, a month, and a year, and celebrate those milestones. It may sound weird, but I’ve actually gone back to a paper day timer so I can easily page forward and back and look at those milestones, and I schedule quality time to relax and celebrate milestones.
7. Find balance in your life. I know, it’s easier said than done. I have found in working with clients, and in my own life, that impulse spending is often the result of self-imposed stress, being overworked, or listening to what the media and other people tell us about living a quality life. No one can tell you what will make you happy except YOU! Take one hour of quality “think time,” with no distractions, to meditate on what you love about the way you live now, and what would make it even better.
8. Talk with your support network for help. Talk with your spouse or life partner, your friends, parents, financial advisor, CPA, or even a life coach, fitness coach, therapist, or personal organizer. Find others who can be your cheerleaders (not detractors) as you make resolutions on your journey. If you don’t feel supported by your support network, you need to find a new support network. They can’t do all the work for you, but they can help.
Good luck and I hope you make 2016 the best year yet!
More about the author: Jody Redmann is a Financial Advisor and Accredited Asset Management Specialist with Kingsview Asset Management, LLC an Investment Advisor registered with the SEC. Jody is Kingsview’s first female advisor, and her background as a business analyst and project manager in Silicon Valley’s financial software services sector helps her bring her holistic approach to money management to the team. Jody uses Charles Schwab as custodian for her client’s hard-earned savings.