6 Habits for Smart Money Management

By Michael J. Searcy

If you’ve reached the month of March and your New Year’s Resolutions have completely flown out the window, you’re not alone. A Journal of Clinical Psychology report found that only eight percent of people are successful in achieving their resolutions. They also noted the number of money related resolutions was near thirty-four percent, so the low success rate is troubling because failing at smart money management can impact your future. Let the following six habits for smart money management serve as a guideline to help you get your finances in order and make life-long, healthy financial choices:

  1. Know Where You Stand – The first step in getting started is understanding your starting location so you can track your progress. This includes taking an inventory of your assets and liabilities (what you currently own and currently owe) and determining your net worth. It is helpful to track your living expenses so you can determine where you spend money and better organize your spending habits.

  2. Set a Budget – Some people think “budget” is a scary word. A budget should incorporate your monthly expenses and those that come up on occasion. It should also be a tool to help you pay down debt. If it makes you feel better, just call it your “Planned Spending” report.

  3. Eliminate Debt – Debt can hold you back from achieving your goals, so you should take immediate steps to get out of debt. Include paying down debt in your monthly budget so you don’t overlook the action. There are different opinions as to the best plan to get rid of debt (for example, paying off loans in order from smallest to largest, or paying debt off in order of highest interest or lowest), but the point is to develop a plan and stick to it.

  4. Build an Emergency Fund – A great defense against accruing more debt is developing an emergency fund. Determine how much it costs your family to live each month. Then, think about how secure your job is and how long it might take to find a new one if you lost your job. This can help determine how many months’ worth of an emergency fund you should set aside for a rainy day. Most advisors suggest having at least 3-6 months of normal living expenses set aside.

  5. Prefund Major Purchases – Some future purchases are inevitable, and can be planned for to help reduce the need for taking on debt when you’re ready to buy. A simple formula will help you determine how much you should save each month before the purchase to be able to pay without credit: Total $ Needed / Number of Months Before $ are Needed = $ to Save Each Month.

  6. Systematically Save and Invest – It is never too early to begin saving for the future, and the longer you save, the longer compounding interest has the power to work for you. Consider investing 10% of every dollar you make, minimizing expenses, diversifying your investments, and sticking with a long-term savings/investment plan. If you are able, maximize your retirement plan to benefit from this pre-tax savings vehicle.

If you would like someone to help walk you through how to implement these habits into your life, contact us at 913.814.3800.

Originally published in Johnson County Lifestyle magazine

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on March 10, 2015 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.