Quick note: I have been a little off the grid since our high school football season began in August. As a reminder, other than being an attorney, I am also a high school football coach. Hopefully, next season, I can manage my time better and still keep up with this passion project, The Sytch.
Additionally, falling behind on The Sytch led me to think about how important it is to not let things go for too long, which then led me to the idea behind this article. If I ever sound judgmental, that is never my intention. I can usually empathize with many situations because I am often a perpetrator as well.
I avoid using 'hate,' a word I strongly dislike, but I get frustrated by the tendency to postpone self-improvement to arbitrary future dates like "next week" or "next year."
Bettering oneself can come in many forms. Spiritually, physically, mentally, and financially. It is too easy to bury one's head in the sand and just "wait until Monday." Or, going back to the title of this article, "wait until 2024."
We still have two months left in 2023, and if you need a little guidance on what to do with your finances before then, I came up with the five most important things to do to start 2024 right financially.
One. Find out how much money you are spending a month.
I did not want to use the word "budget" in the headline, but this is what this step is all about. Doing a simple budget gives you power over your spending and allows you to say with certainty how much you are spending in certain categories.
Many of us claim to not make enough money, but then when asked how much money they spend a month, we cannot answer.
The average person may be able to rattle off their bigger debt payments, such as a home or car, but what about weekly spending on groceries, subscriptions, entertainment, clothes, eating out, coffee, gas, etc.?
If you feel that your earnings are insufficient but are unsure of your monthly expenses, establishing a budget is essential.
If you need some guidance on how to budget, I have written about 4 different methods in the past. The first one is a more in-depth way of budgeting which I suggest everyone do at least once. Then, the other three are much simpler ways to budget.
Two. Cut down on frivolous spending today - not next year.
After you create or review your already existing budget, focus on areas of your budget that you can tighten up.
I love the category approach with savings. The category approach is attacking one area of your spending habits at a time.
This approach has had the most lasting effects on our family.
A simple breakdown of this approach is the following: After budgeting, you realize you are spending way too much money on groceries, eating out, and subscriptions. Instead of attacking all things at once, spend a month or two on just one.
So, limit your eating out to just once a week and give yourself a spending limit when you do eat out. When this becomes easier, continue with this newly formed lifestyle and then attack a 2nd category.
Now you can keep repeating until your spending habits are where you would like them to be.
Three. Create/check on your emergency fund.
Every personal finance enthusiast will agree: start building an emergency fund before venturing into investments.
An emergency fund is money set outside of your actual checking account and is designated for actual emergencies, such as unexpected job loss. I like high-yield savings accounts through an FDIC-insured bank because they provide modest interest returns in an extremely safe location.
Life circumstances, such as family size, usually dictate how much money to include in a person's emergency fund. The consensus is anywhere between three to six months of living expenses. Here is the approach we use.
Four. Attack high-interest debts.
Imagine carrying a heavy backpack all day. That's what debt feels like on your finances.
The most concerning high-interest debt is usually credit cards. I am not referring to having a credit card "balance" owed. I am talking about credit card "debt".
A credit card balance is when you use your credit card to make a purchase, and you are given a set date to pay it back.
A credit card debt is when that date comes, and you fail to pay that balance off in time.
Credit card debts can have an interest rate upwards of 20%+! Even the best investments will not overcome these high-interest rates.
If you have credit card debt, do not wait until the new year to start paying them off.
Five. Revisit/Create your financial plan.
Most good savers and investors can weather almost any storm because of one common trait: They can ignore outside noise because they trust their financial plan.
A person should never make knee-jerk reactions because of a headline saying a recession is coming or social security will be gone in less than a decade. These headlines are just distractions and are meant to get a viewer's attention.
When creating your plan, keep two things in mind. 1) Spend less than you make; and 2) Consider investing 20-25% of your income in low-cost index funds.
In your plan, at minimum, you should do the following:
Write down your gross income.
Write down your monthly take-home pay.
Write out your spending habits.
Write down your debts owed and their interest rates.
Write down your short-term and long-term financial goals.
Write down how much you will save, invest, and/or use to pay off debts every month.
Bonus! Six. Do a net worth statement.
In a nutshell, a net worth statement is your assets minus your liabilities. Thus, your net worth is how much cash you would have if you were able to liquidate (or sell) your major assets, minus your debts.
Doing an annual net worth statement can help you diagnose issues with your finances before they become too big to fix.
My most popular article is where I detail how to properly do a net worth statement. The first two paragraphs of the article summarize my argument on why this is such an important step:
"Keeping track of your net worth is equivalent to having an annual checkup with the doctor that includes bloodwork. Getting the annual doctor checkup may not be necessary, but if you want to optimize your health as you age, it is vital. How do you avoid high blood pressure becoming a major issue? Identify it as early as possible and treat it. The same goes for many other ailments or conditions as you age, such as issues with your sugar levels.
Think of tracking your net worth like the annual doctor checkup. It may not be a necessary step to achieve financial success for some, but if you want to get nerdy with your finances and optimize every dollar, tracking your net worth is a must. Knowing your net worth every year requires you to do a deep dive into your finances. This forces you to diagnose any issues you are having."
If you wish to graduate to this next step and do a net worth statement, you can find my article here.
Final Thoughts
Although this may sound simple, understand that it is not. Confronting a person's finances and spending habits head on is extremely difficult. The first time my wife and I did a 3 month audit of our spending habits, tears were legitimately shed.
As a refresher, here are the 6 money tips to do before 2024:
Find out how much money you are spending a month.
Cut down on frivolous spending today - not next year.
Create/check on your emergency fund.
Attack high-interest debts.
Revisit/Create your financial plan.
Do a net worth statement.
No matter how you decide to better your situation, do not wait until next year to do so. Start with just one of these steps today and let me know how it goes!
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