Spring is coming to a close. Now that the days are warmer and longer, you might be working on projects around the house that you had been putting off. Now is also a good time to spruce up some of your financial habits as well. Let’s review some simple things you can do now to clean up your finances.
- Create a Budget
As boring as it may seem, creating a budget is really the place to start when it comes to fine tuning your finances. It’s hard to look at other goals if you have no idea what money is coming in and where it is going. Consider it like laying the foundation on a home. You may be more excited or interested in picking out cabinets and tile, but if the foundation isn’t installed correctly, you’re going to have a lot of problems.
If you have never tried to create a budget before, keep it simple and start with broad categories. Over time, you can refine it and get more detailed. You could also use budgeting apps if you are looking for a tool that may help automate your budget. The main thing is you want to see where your money is going and how much is left over after you’ve paid your expenses.
- Start an Emergency Fund
After you’ve created a budget, review it and determine what your essential or “non-discretionary” expenses are per month. These are expenses like mortgage or rent, insurance premiums, groceries, debt payments – expenses that are really non-negotiable. Segment them from expenses that are negotiable like dining out, entertainment, travel, subscriptions, etc. If you don’t have anything saved for an emergency yet, you should aim to save 3-6 months worth of these “essential” expenses as a starting point in an emergency fund. If you lost your job, you may not be able to dine out as often as you used to, but at least you will have saved enough in your emergency fund to keep a roof over your head and your insurance coverages paid for as an example.
- Pay Down Debt
If you haven’t created a plan for paying down debt or you’re just making minimum payments, try to review and re-work your budget to see if there is room to pay more toward your debts (especially consumer debts like credit cards). Just as you did when trying to formulate what you should be saving in an emergency fund, segment your budget between essential expenses and non-essential or negotiable expenses. Look closely at the non-essential expenses and see if there are things you can cut or do without. Whatever you save by cutting certain expenses could potentially be re-deployed toward paying down your debt faster.
- Enroll in Your Company’s Retirement Plan
If you haven’t already done so or weren’t automatically enrolled when you were first eligible, enroll in your company’s retirement plan and start contributing. If you aren’t sure about how much you can truly save, then start small and increase your contributions over time. The important thing is to get started and let the power of time start working for you.
- Review Insurance
Last but not least, review your insurance coverages like auto, homeowners/renters, and health insurance. Make sure your current coverages are adequate and make adjustments as needed. Be honest about how much coverage you truly need as skimping out to save a few dollars now can have catastrophic financial consequences down the road. If you’ve experienced a life event like getting married or having a baby, your insurance needs may have changed and you may need consider additional coverages like life insurance. A qualified professional can help review and guide you.
Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.