By Matt Gallagher
Your Finances
Matt Gallagher
Americans seem to be obsessed with tidying up. Maybe it’s due to the American tendency to seek out self-help and continually improve, but there seems to be a cultural phenomenon around the importance of a clean and orderly life.
Just think about how good it feels to step back and look at a clean house. Now imagine the difference an orderly approach can have on your finances. The truth is, it can be difficult to achieve your financial goals if you can’t see all of the pieces of your financial life. By taking the time to organize, you give yourself the best chance for success.
Organizing your finances makes it easier to set aside the right amount to invest for your future goals. Create a budget and you will gain confidence because you’ll have real numbers to review instead of just guessing.
Declutter your financial life by itemizing your bills and paying them all on time so you can get a better view of how much you have left over to save each month.
Organizing your financial life can be fun. If you’ve been contributing to a 401(k) or other investment account, seeing a comprehensive picture of your assets may be a pleasant surprise. However, finances are also often complex. It’s just as important to be aware of the debt you owe as the investments you’ve made.
The average American household has four credit cards. On those credit cards, an average household also carries over $16,000 in credit card debt. And we haven’t even gotten to a mortgage or car loans.
Taking an inventory of your accounts – both assets and liabilities – is the first step toward organizing your financial life. Identifying the accounts you own and how each contributes to your overall financial health will tell you your net worth (calculated by subtracting your liabilities from your assets). Your net worth will vary over time, but knowing this number and whether you are trending positively or negatively will give you a clearer idea of your current financial standing.
On your financial journey, it’s important to have a destination in mind. But without a map to guide you, that destination will be more difficult to reach. Knowing where your money is, as well as how much you owe, helps create that map so you can visualize any opportunities to make changes that better support your goals.
Once you’ve created a list of your accounts and divided them between what you’re earning and what you owe, such as your home mortgage, you’re on your way to creating the basics of a financial plan.
Creating a financial plan is the surest way to know if the goals you have for your life are attainable. You may want to do something big, like climb Mount Everest. Or you may want to retire on a quiet street and enjoy time with family. Either way, a financial plan will help you know if you have the means to do so.
The planning process doesn’t have to be complicated. Leveraging technology is one of the best ways to get organized financially while helping you visualize how you’re spending and saving habits affect your ability to reach your goals. Most plans are available right from your phone or tablet.
Though organizing your finances, mapping your goals and understanding your ability to achieve them are the critical first steps, there are a number of other essential financial considerations to plan for as well, such as how much money you need to live on beyond funding your goals; whether or not you’re properly protected with the right insurance; and if your savings for retirement are adequate to sustain your desired lifestyle.
If you’re unsure of the answers to these questions, you may want to talk to a financial professional and find out what steps you can take to improve.
Matt Gallagher is a partner and head of business development at TrinityPoint Wealth. He can be reached at 203-693-8519 or by email mgallagher@trinitypointwealth.com.