10 Tips for a Financial Plan that Works!

I’ve previously written about budgeting, but there are a number of other things you can do to stay in control of your finances.

Here are 10 tips that worked for me:

1. Minimize your monthly expenses, but also minimize the number of bills you pay each month

For example, most car insurance companies let you save money by paying every six months. Avoid services with monthly bills.  And forget payment programs; if you want to purchase something save for it and pay in full!

2. Look a year in advance

What are all the expenses you expect to have? I pull out a calendar and write down all expenses I expect and when they will be due (e.g., birthdays, back to school, holidays, extra gas on months I have events further away, license renewal, Matchbox Twenty coming to town).

3. Log all your expenses

Even after getting out of debt, I have continued to log all my expenses.

To lose the weight after having my third child, I approached it as I did my finances: I wrote down what I ate and how much I exercised every day. Within a few months, I was below my pre-pregnancy weight. “Great! I can stop logging my food,” I though. Well, as soon as I stopped keeping track, some of the weight came back. So I started recording it again, and lost the weight again. I’m not going to stop logging my expenses anytime soon.

4. Pay all your bills on the first of each month

This will save time, reduce stress, and avoid late fees. Plus, you will know with certainty how much you have left at the end of each month (and how much extra you can throw toward your debt!).

If you don’t have enough to pay for next month’s bills, plan to start on the month you receive an extra paycheck (if you’re paid bi-weekly, you should have two months each year with three paychecks) or receive a tax return. If this still wouldn’t be enough, consider finding ways to earn enough extra money to cover next month’s bills.

5. Reduce, Reuse, Upcycle

Before discarding anything, think about how it could be repurposed. Before purchasing anything, think about what you already have that could be used. Overcoming functional fixedness can not only reduce waste, but also save money.

6. DIY

I don’t pay other people for things I can (or can learn how) to do myself. This includes small things (like trimming my nails and cleaning my home) as well as the big ones (like my husband learning how to replace the pool pump or lay sod).

7. Make a shopping list and stick to it

Exceptions being if you have been planning to get something and finally find the one you want or can get it at a reduced cost.

8. Communicate with your spouse

A marriage is above all else a legal relationship. You have a fiduciary responsibility to your spouse, and s/he to you. If you are keeping secrets from your partner about money, the reason for the deception needs to be addressed. Consider seeking professional help from a marriage counselor. I am a firm believer against financial infidelity.

9. Focus on one goal at a time

I found that when I tried to do everything (e.g., debt repayment, retirement contributions, saving for a down payment), I didn’t make meaningful progress on anything. The secret is to focus on only one goal at a time until you are out of debt.

To learn how to prioritize. When I was staring out, I followed Dave Ramsey‘s baby steps. I have learned a lot since then, and love Ninja Budgeter’s post Why I Stopped Following Dave Ramsey. But when I was trying to get out of debt, his baby steps really were helpful for prioritizing what to focus on and in what order.

Step 0. Get up to date on bills
Step 1. $1,000 (starter) emergency fund

◦Throw any additional cash you have above $1,000 toward your debt snowball

◦The exception being any money you know you’ll need for upcoming expenses (e.g., moving costs). Keep this money accessible so you do not accrue more debt to pay for them

Step 2. Debt snowball

◦Line up debts from  smallest to largest amount

Make minimum payments on all but the smallest

◦Throw any and all additional money you can get your hands on toward the smallest debt

◦Once smallest is paid, put that money toward the next largest

Continue this process until all your debts are paid off except your mortgage

Step 3. Fully fund emergency fund

◦Set aside at least 3-6 months worth of expenses

This money should be kept liquid and somewhere where it can be easily accessed and will not decrease in value (e.g., savings or money market account)

Step 3a. Save for down payment on house

Once you are out of debt (except for your mortgage), if you want to get back to your Fancy Pants lifestyle, travel, or save for a house – this is the time. Enjoy your life! Just do it without borrowing from your future self (i.e., taking on more debt)

{Steps 4-6 are done at same time}

Step 4. Retirement

This is the time you can start saving for retirement, but forget about a 5% contribution. Max out both your employer-sponsored and Roth IRA accounts

Retirement 2018 max: $5,500 Roth; $18,500 401k/403b/TSP (excluding employer contributions).

(That’s $24,000, which might seem like a lot, but remember that you have no debt and likely you’re in your 30s with no retirement!)

HSA 2018 max: $3,450 individual; $6,900 family (including employer contributions)

An HSA (health savings account) can also be a great vehicle for retirement. Contributions can with withdrawn at anytime to pay for qualified medical expenses. After age 65, the money can be withdrawn for any reason (though you will have to pay income tax for non-qualified expenses).

Step 5. Save for kids’ educations
Step 6. Pay off mortgage
Step 7. Build wealth (investments, real estate, etc.)

 

10. Finally, avoid lifestyle inflation

I’ve written about how avoiding lifestyle inflation is key to getting out of debt. Even now that my mortgage is my only debt, I still try to keep my expenses to a minimum and am constantly looking for things to cut from my budget.

But I don’t plan to live on rice and beans forever. This year, I mindfully gave in to some lifestyle inflation as I thought more about what brings value to my life (e.g., new activities for my children, improvements to my home, enhanced security). But I easily afforded to do these things without taking on any debt. 

 

What tips have you found most helpful for planning your finances? 

Pay Yourself First Budget

Avoiding Lifestyle Inflation is Key to Getting Out of Debt

3 Most Inspirational Personal Finance Posts on the Internet

2 thoughts on “10 Tips for a Financial Plan that Works!”

    1. Absolutely! I am so glad you love the blog. We will have a lot of wealth building posts to come. Grateful for your comment!

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