It’s spring and the trees and flowers are finally budding. After a long & cold winter, the change of seasons adds a little optimism to carpe diem. With this renewed sense of optimism, today is the perfect opportunity to check several items off your spring financial checklist that can be completed in the next 3 days.
We’ve broken it down into 3 Days –
Day 1:Rebalance Your Finances & Automate Your Spend
Day 2 – Plan Your Summer Vacation
Day 3: Boost Your Earning Potential
Task #1: Track Your Spending
Before making any financial adjustments, you need to get an accurate snapshot of how you spend your money on a monthly basis. Using free budgeting tools like Mint or Personal Capital make it easy to track your spending & see just exactly how you spend.
For example, your goal may be to only spend $200 a month dining out. After tracking your spending, you realize that you actually spend closer to $300 each month. To continue spending this amount each month, you have to decide where you might have to reduce your spending to compensate. If you spend less somewhere else, like entertainment or insurance premiums, this might not be a hard decision.
Task #2: Adjust Your Budget
If you tracked your expenses or made a budget last year, compare your current spending habits to your previous ones and look for any changes. There might be some large changes if you purchased a home or had a baby. Maybe you just have small changes like getting coffee before work every morning instead of only 1 or 2 days a week.
Take a few minutes to make a new budget that reflects your current spending habits. If you spend more in one area than you want, budget less money than you are currently spending and make a plan to stay within budget.
If you are totally averse to making a budget, you should set aside at least 10% of your income in a savings account to serve as an emergency fund & you can use the remaining money to pay your bills and other monthly expenses. This “unbudget” concept allows you to still live within your means.
Task #3: Rebalance Your Investments
At least once a year, preferably every 6 months, you should look at your retirement and non-retirement investment accounts and rebalance them. When you first opened your account, the brokerage probably had you complete a questionnaire to determine your investing goals & retirement plans. Part of the survey results includes a recommended allocation for how much of your paycheck should be invested in domestic & international companies in addition to large & small companies.
Because different funds perform differently, your portfolio will most likely need some minor adjustments. An example might be if you have the option to buy company stock and it returned 45% in the previous year. Most experts recommend that your 401k consist of no more than 15% of company stock, but a strong return coupled with weak gains on your other holdings could boost that allocation to 30% of your total portfolio size.
If a sharp market downturn happens or your company suddenly goes bankrupt (i.e. Enron), your portfolio value will plummet like a lead balloon and potentially never recover due to an overconcentration in company stock. Routine rebalancing helps ensure your portfolio stays diversified and reduces your overall risk of losing everything.
If you do not feel confident in continually rebalancing your investment portfolios, you can always sign-up for a target date retirement fund. There are some losers in this realm as well, but, for the most part, many of the funds are managed by experts in quality funds and maintain a target allocation similar to your own recommended investing strategy.
Task #4: Automate Your Finances
Chances are you do online banking and pay many of your bills electronically. An easy way to alleviate the stress and hassle of managing your money is to automate your finances as much as possible.
This is accomplished by using your bank’s bill pay feature. You can schedule payments to automatically be sent each month on the same day for the same dollar amount like putting $100 in your emergency fund or paying rent on the 1st of each month. For expenses that vary like your electric bill or credit card statement, you can provide your checking account information with the utility and they will automatically debit the payment on the due date.
You might actually be able to save money by automating your finances as some companies give you a small discount by enrolling in autopay!
Summary (Day 1)
The first actions on your spring financial checklist are to review how you have managed your money in the past year & make a plan that accurately reflects how you need to spend your money for the coming months. Periodic rebalancing & automating your finances helps ensure you stay on-track with your money goals.
Day 2 – Plan Your Summer Vacation
After making a new budget & automating your month-to-month finances, the next item on your Spring financial checklist is to plan for those large one-time expenses. The one that will be coming up next will be the annual summer vacation. This might also be your single largest expense each year, so it’s important to plan your summer vacation in advance to look for the best deals.
Task #1: Set a Spending Limit
You might have $10,000 in your bank account but it doesn’t mean you want to (or have to) spend that entire amount on your annual summer trip. That means you might not be able to travel to an all-inclusive resort in Tahiti, but, you can still have fun.
Depending on where you go, many families can easily expect to pay about $1,000 per person. If you have a family of four that means your trip could easily be $4,000.
Your vacation is going to be determined by 4 expense categories:
- Lodging
- Transportation
- Sightseeing
- Food
Let’s tackle each category individually and ways you might be able to save a few dollars:
Lodging
When it comes to lodging, you need to book as early as possible. Using a site like Airbnb, VRBO, or HomeAway can help you save some additional money instead of going to a hotel that might charge a similar nightly rate but not have a kitchen or other amenities.
If you can be flexible with your dates, most lodging sites will least their different prices. For example, traveling mid-August might be cheaper than July 4th weekend because some schools are already back in session & it is the tail end of the travel season.
Transportation
Driving yourself is almost always the cheapest option, especially if you have multiple children as you need to buy a plane ticket for anybody over the age of 2.
Like lodging, you don’t want to wait until the last minute for a flight because all the good times have already been purchased and the remaining ticket prices are usually notably higher than they might have been in the Spring.
If you decide to fly, booking directly from the airline is probably the most cost-effective option. But, you might be able to find a discount fare from third-party sites like Hotwire, Orbitz, or Priceline, but, keep an eye on booking fees that aren’t included in the advertised fare price.
Sightseeing
If you plan to visit several museums, theme parks, or other attractions, you might be able to find a package that allows you to visit one place for free. As soon as you know where you want to travel, start looking for discounts as some companies only provide limited-time packages in the Spring.
These packages do require prepayment, so you will need the money now to make your reservations.
Food
Just like you need a place to sleep, you also need to eat. Thankfully there is more negotiation with food prices depending on your lodging accommodations. You have the most flexibility if you have a kitchenette with a small cookstove and an oven because you can cook some meals from home by buying the ingredients from a grocery store.
Even in a hotel, you have options to reduce your food budget. Staying at a hotel with a continental breakfast can be cheaper than staying at a hotel without one. And, you can also keep meals in your mini-fridge.
It’s okay to eat several meals out (you are on vacation after all), but, by taking the effort to at least eat some meals in can save you money on an average lunch can cost $10 per person & $15-20 per person for dinner.
Task 2: Make a Savings Goal
After you have a dollar figure in mind for how much you want to spend for vacation, look back to your new budget and try to add a section to dedicate a small amount of each paycheck to be applied for your vacation.
Depending on your salary & the cost of your vacation, it can be a good idea to save a few dollars for the entire year. This way your vacation bills will not arrive unexpectedly like an emergency car repair does.
In addition to saving for summer vacation, you can use this same approach to save for Christmas shopping or any additional travels you might do during the year.
Summary (Day 2)
Vacations are large expenses that happen every year. By planning in advance, you can not only secure the lowest prices for your lodging and transportation but, you also have time to begin saving for your trip so you don’t have to dip into your emergency fund or max out your credit cards.
You can also use this same approach to save for Christmas & your other travels.
Day 3: Boost Your Earning Potential
Spending less than you earn is the best way to ensure you stay out of debt. This is a great goal that everyone should strive for, however, sometimes you can only cut your budget so much. Boosting your earnings potential and increasing your monthly income is another option when you cannot reduce your spending further. The final step on your Spring financial checklist is to boost your earning potential.
Task # 1: Analyze Your Current Income Streams
The previous portions of the Spring financial checklist have been focusing on cutting expenses and saving for future expenses. The final leg of the three-legged financial stool is earning enough income to pay for these purchases.
First, look at how much money you make each month from your current job(s). Is it enough to cover your normal budget expenses?
Task #2: Optimize Your Time at Work
Next, analyze how you spend your day at work. If you were to do some things at work differently like assuming more projects or seeking a promotion, could you earn larger commissions or a higher salary? If you spend a considerable portion of your day at work already, working “smarter” instead of “harder” might be the easiest way to earn a higher income as you simply get paid more for the same amount of work hours.
Task #3: Optimize Your Time at Home
When you are at home, how do you spend your time? Do you primarily surf Facebook reading the latest status updates or watch re-runs of your favorite tv sitcom on Netflix? It’s okay to relax, but, you might be able to make some extra money in your spare time by pursuing a side hustle and earning a part-time income.
This additional job doesn’t have to be a full-time endeavor for the rest of your life. You may only do it during a few months of the year to save enough money for summer vacation or Christmas so you don’t have to divert any money from your regular paycheck that might be used to invest, make extra loan payments, or allow your child to play tee ball.
Task #4: Work for a Purpose
You should be intentional with your new income. If you are currently living paycheck to paycheck or have loans to repay, use the extra money to pay your existing bills instead of finding new things to buy such as a bigger house or a new flatscreen tv because you can now afford it.
This is called lifestyle inflation. If your spending increases equally with your income, your earning power really hasn’t increased. If you can keep the current budget you made on day one of the financial checklists before receiving a pay raise, the extra money can be used for intentional savings goals like repaying your student loans early or not having to borrow money to pay for summer or Christmas vacation.
If you can get used to living on a frugal budget based on a $35,000 income when you currently make $50,000 per year, just think of all the additional things you can do with that extra money to save for future expenses, vacations, and experiences without having to stress later about how to afford it?
Closing Thoughts
Boosting your income might be an easier option than cutting your expenses to make ends meet. Especially if you live in an expensive town, have lots of loans to pay back, or have the ability to boost your salary at work or take on a side job by using your time more productively. By boosting your salary, cutting expenses, and making savings goals you have all the tools to “clean financial house” this Spring.