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For many people, spring is a great time to look at one’s financial picture. After the spending frenzy of the holiday season and smack in the middle of tax season — a good old fashion self-audit can be a wake-up call that something needs to change.
Nicole Gopoian Wirick, founder and president of Prosperity Wealth Strategies, a registered investment adviser in Birmingham, Michigan, says it’s critical to create intentional time to sit down, think about where you are financially and then set some goals for how you can achieve them.
“And then adjust your finances accordingly,” Wirick said.
Here are three things you can do today, with or without the help of a financial professional, to “spring clean” your finances.
1. Know your foundation.
Now is the time to identify your assets and your liabilities, according to Wirick. What do you own and how much is it worth? And what do you owe and how much? The number that remains is your balance sheet — your net worth. And if you can go back a few years, you can determine if it is increasing or decreasing — and why. If you bought a house, lost a job or inherited money, it can affect your net worth.
“These are the building blocks of your financial future,” Wirick said. “You can use a free online tool to do this or you can write it all down on a piece of paper. It can be simple — it isn’t complicated.”
This needs to be done annually, so set a calendar reminder in your phone and make a plan to do it at the same time each year.
2. Evaluate Cash Flow
Once you know your net worth, the next step is to evaluate your cash flow. With online banking, this is easy. Determine how much money comes into your account each month and how much leaves it. If you are in your working years, or your accumulation phase of life, you need to be spending less than you make and saving all you can.
Setting spending and saving targets is critical and if you are struggling with this, Wirick said, a financial professional is a great option: “Thinking about your finances might not be your favorite thing to do, but it is absolutely something you need to do regularly. You should know if you are saving the right amount.”
3. Pay Yourself
Now it’s time to pay yourself. What does this mean? Wirick said it is generally making sure you have an adequate emergency/opportunity fund and that you also have a plan to save for specific needs and wants. An emergency or opportunities fund should be 6–12 months of your salary for a single person, or 3–6 months for a couple. This cash should be socked away in a separate account that doesn’t have a debit card attached to it, and it should come automatically out of your monthly income. Wirick calls this paying yourself first — and says most people do not do this. Also, having a separate “sinking” fund for specific needs like a big vacation or a home renovation is a good idea, so you can save a little each month until you reach your goal.
“Treat saving like you would any other bill, your rent, your car loan,” Wirick said. “Make it an automatic debit that goes into a special account. Do NOT pay anything out of it. An automated approach can be really helpful in this case.”
Not everyone is financially inclined, but an aversion to money management is no excuse to ignore your expenses. The fact is, life happens and using your money to insulate you from risks — while saving for long-term rewards — is something everyone should do.
“As life changes, money changes,” she said. “And as money changes, life changes. It’s important to stay on top of those changes.”
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