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‘Tis the Season to Take Back Your Finances

holiday-financial-tips-featured-image-headerMoney, or the lack of it, can cause tremendous stress, whether at home or in your business – especially this time of year when buying gifts. If you’re a baby boomer or generation x’er you might be surprised that millennials are better at managing their finances than your generation. When compared to baby boomers, people between the ages of 18 and 33 were more likely to track expenses and stick to a budget, a 2015 survey by T. Rowe Price found. Sixty-seven percent of young people follow a budget, compared to 55% of boomers. And still 30% of young people express their anxiety about having enough money in the checking account to cover daily expenses. So it turns out we all could use some help in the budget department.

Learning how to budget will reduce that stress, help you cut wasteful spending, and make it easier to bounce back after a job loss or other money crisis. But, those who master their finances don’t do it by coincidence. It takes planning, a reckoning of the life you want to live, and some discipline. The good news is that anyone in any generation can gain control over his finances. The important point is not to just know how much money you have, it’s what you know about where it’s coming from and where it needs to go.

Start by evaluating your income. How much money do you have coming in? Your paycheck is a given, but don’t forget other income: a second job, passive income, or any other miscellaneous cash that you might have coming in. Write it all down and add it up. That’s your starting point toward the financial comfort zone.

Then start listing your goals. They serve as the guide along your path to financial security. It starts with knowing why you’re doing what you’re doing — unless you know why you’re working so hard, why you have to make sacrifices — you’re doomed to fail. However if you set goals, they can help guide you even when life seems to be out of control. When you make decisions, your goals will keep you focused on what’s most important.

Let your goals direct your spending, and then track your spending. First, list out your major purchases, including all reoccurring costs, like bills, and occasional purchases. You can use a software program or just create a simple note on your smart phone and transfer it to your spreadsheet. Note what form of payment you used as well as the date and amount spent. Do this over a two to three month period and you can determine your weekly and monthly average spending. Use a budgeting application—there are lots of good ones out there—to get a clear picture of your income and outgo.

In managing the ‘budget beast’ you can use a tried and true software program, like Quicken. Those financially savvy millennials often use a receipt-scanning smartphone app, like ReceiptsPro or NeatMobile, but these apps will cost some handsome dollars. YNAB, which stands for You Need a Budget, is a desktop application that’s well suited for beginners because it includes a lot of information about the rules behind its budgeting philosophy. The Pageonce app (for iPhone, Android, iPad, and Windows Phone) is a mobile budgeting app from which you can actually perform transactions. Balance updates aren’t as fast as in Mint.com or Adaptu, however. Whichever method you choose, stick with it. Make it a habit. Don’t fudge the numbers. Record your transactions as soon as possible.

Key is to automate your finances by recording routine transactions. The online-based Doxo lets you manage household payments, connect with utility and service providers, as well as backup important family documents while you’re at it (for example – last year’s taxes), so it does double duty. When you make things automatic, you remove the human element, making it more difficult for you to make errors or fudge the numbers.

Most of all, don’t judge yourself. Tracking your spending is an exercise in data collection; it’s not the appropriate time to change your habits. It’s important to note what form of payment you used as well as the date and amount spent. Do this over a two to three month period and you can determine your weekly and monthly average spending. Then change any bad habits after your’ve identified them.

After you’ve tracked your spending for a few weeks (or months), use the data you’ve collected to develop a budget. According to The Millionaire Next Door, budgeting is one thing that sets the wealthy apart from the rest of us — 55% of millionaires keep a budget. Another trait of millionaires is that they review the contracts and agreements they have with various banks and service providers at least once a year. This is a great time of year to review your financial accounts to be sure everything still matches your needs.

Too many live paycheck-to-paycheck, spending everything they earn – especially these days. But this way of living leads to a dead-end when suddenly those folks run out of money for essentials when a crisis happens, like a car repair, or an illness that results in thousands of dollars in health bills. Typically non-planners deal with these emergencies by using credit cards. The solution is to start a reserve fund for unexpected costs. And start paying off credit cards by eliminating those with the least amount first before tackling the larger credit card accounts, in order to build confidence and create positive momentum. Make it a priority to pay off some of those credit cards or loans this year.

Trim as many superfluous costs as possible. If you’re spending $100 a month at the local coffee shop for your vanilla lattes, consider only splurging once a week and roasting coffee at home. Eliminating one meal out a week could save you hundreds of dollars over the course of a year. At $13 per person for the average inexpensive restaurant meal, according to Numbeo, you’ll save over $600 by cooking one meal a week at home rather than driving for a meal. Make an honest evaluation of ‘needs’ versus ‘wants.’ This can create a fresh perspective to your budgeting process and can focus more attention on the needs of others as well. Great wealth earners are generally great givers; and, that’s because they have more to give through wise financial decisions.

Along this line, the next step in your path to financial security is to decide how to better invest your money, or increase your earnings. You can meet a lot of your financial goals by reducing your spending and using the right tools. But nothing supercharges your progress like a boost in income. When tech stocks were booming in the late ’90s, safer investments like bonds, CDs and less-volatile blue-chip stocks were derided as small potatoes. Diversification was considered lightweight. But successful investors have always known that any one class of assets — stocks, real estate, bonds, cash — will have its ups and downs. That’s why you’ve got to own all of them, in a mix that’s right for your age, income, family responsibilities and tolerance for risk. And, don’t forget life insurance if you have a family, just to be safe.

Real estate investment, which is geographically and demographically dependent, can be a good investment if the market value increases because of an increasing employer base. If you’re a renter, use a “rent versus buy calculator” that you can source on the Internet to determine the best option for you. Retirement accounts are popular too. You can use the software calculator provided by your retirement account provider (they all have them) to determine a fair amount to deposit.

Think also about how much you will need to retire. If you’re a young millennial, you probably don’t think you need to start a retirement account. You’re wrong. No matter how old you are, now is the time to begin saving for retirement. The extraordinary power of compound interest favors the young — and in a big way! In The Automatic Millionaire, David Bach writes: The single biggest investment mistake you can make [is] not using your [retirement] plan and not maxing it out.

No matter your age, factor in a reasonable longevity and work backwards from there. If your employer matches a percent of your contribution, keep in mind that contributing the full amount that the company will match lowers your current income. Build an emergency savings fund to cover at least eight months’ living expenses in the event of a job loss or some long-term medical issue.

Creating a budget plan may be almost as painful as getting an impacted wisdom tooth removed, but a budget will prevent that “what happened to all of my hard earned money?” feeling and subsequently help you build a healthy state of well-being. Fortunately, there are multiple ways to budget so you can find one that suits your personality. But first, you need to practice the art of financial accountability. If you want to reap financial rewards, you have to wisely sow a financial plan. It’s truly the gift that keeps on giving.

– Randy Kay is a CEO of TenorCorp/PACEsetters, a strategic and talent development firm. Prior to this he has overseen training and development for top performing companies, been a biotech CEO, Board Member for over 20 organizations, executive for Fortune 100 companies, and has published four books and several articles in business magazines such as Switch & Shift and Forbes as well as conducted interviews through numerous networks. Do you want to grow and develop your career and life? Contact Randy Kay directly or discover more at www.pacesetters.training

“Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum.” – Suze Orman