Category Archives: Tips

Systems Not Goals #3–Setting up a Personal Safety Net

Posted in Financial Planning, Goals, Tips on by .

We started of the year posing the idea that instead of setting big goals and worrying about your ability to make them, you can position yourself for success by setting up smart systems.

In previous posts, we talked about reviewing your Net Worth on an annual basis, and about Tracking Your Spending to increase your money awareness. The last system we recommend is the creation of a Personal Safety Net. Unemployment, illness, and family issues can take a toll on your financial situation.  Many people never fully recover financially from these life events.  By reviewing and adding to your safety net once a year you can increase your resilience, protect your savings and shield your family from the financial effects of life’s downturns.

The following are some basic components of a personal safety net that you can begin assembling today:

  • Set aside 3-6 months of expenses as a cash Emergency Fund;
  • Purchase or sign up for the benefit of Long-Term Disability Insurance to provide you with an continuous income should you become unable to do your job prior to retirement;
  • Purchase adequate Term Life Insurance if you have people dependent on your income;
  • Put in place a Medical Directive, to ensure that your wishes are carried out in the event of a medical emergency;
  • A Durable Power of Attorney, will enable your trusted designee to carry out your financial and administrative responsibilities should you become incapacitated;
  • Last Will and Testament – Ensures that your estate passes to your heirs outside of probate and according to your wishes;
  • Review/Update beneficiaries for IRAs, 401(k)s and insurance policies.  These accounts are distributed directly according to the designated beneficiary, no matter what your will may say, so it is important to keep them updated.

This may seem like a daunting project, but even tackling one of these items per month will go a long way to protecting you and your family and will give you all kinds of feelings of accomplishment and peace of mind!

Happy Systems!

 

Leave a comment

System’s Not Goals Part 2: Understand Your Spending

Posted in Financial Planning, Goals, Spending Plans, Tips on by .

Last month we made the case that to get better results around your goals you should focus on creating systems.  Goals and resolutions may sound great on New Year’s day, but seem overwhelming and unrealistic a few weeks later.

Many of you have a goal to improve your finances.  To address this goal, the second financial system we propose is to Understand Your Spending.  Many women are earning great incomes but have so many demands on their incomes (housing, health care, dependent elderly parents, and entertainment/clothing) that they are behind on their savings.

While the typical “goal” is to “go on a budget,” this is not always a motivating or sustainable solution.  Another approach is to develop systems to more deeply understand your money.  By knowing what’s coming in and what’s going out you can make proactive decisions that focus your resources on meaningful spending that reflects actual wants and needs. The tradeoffs between unplanned purchases and your financial future become clear.

What do we mean by Understanding Your Spending?

Step One: Understand your paycheck.  What is your gross each pay period? How much goes to taxes, deductions like health insurance, how much goes towards social security and medicare taxes?  How much goes automatically to retirement savings or other savings?

Step Two:  Understand your spending.  Get out your 2013 credit card summaries and bank summaries and add up all spending by category.  Take the annual spending and divide by 12.  Is this number greater than or less than your net earnings? What observations can you make?  What are your biggest expenses?  Any surprises?  Are you spending your money on the things that are most important to you? Are you carrying high credit card balances to afford your current lifestyle?

Step Three:  Record your spending.  Over the next 3 months record all spending.  You can use old fashioned pen and paper or Quicken.  It doesn’t matter.  They both work.  Do you behave differently when you are tracking your spending?

Whatever your goals are, by periodically repeating these 3 steps you will reduce your stress, increase your awareness of the demands on your money and start to make better spending choices. And, if you have unrealized goals to save more or pay off debt, the answers will come into focus.

Let us know how it goes!

Leave a comment