I’ve been going on this 30-Day Money Cleanse as a way to check up on my finances, and make sure I haven’t strayed too far off the path. Because even a personal finance blogger can get kinda lazy with her money, you know? It’s good to go through something like this periodically, to see your money from a fresh perspective.
This week is all about taking what we learned in Week 1 and turning it into an actionable plan! Here’s how that went down for me:
Day 8 – See How You Stack Up
Evaluate if you are saving more than you’re spending. A good rule-of-thumb: you should have 50% of spending going to basic needs items, 30% to discretionary spending and 20% to savings.
Our goal for this year is to save 37% of our income. Just by attempting to do that, I’m hoping we’ll do way better than 20%! Now, included in that 37% are some short-term savings that other people might not count as “savings” (we have savings accounts for everything from Travel to Gifts to Video Games to Charity Donations…) because some of the money will get spent within 1 year. But without a strong dividing line on what should be considered “savings” and what shouldn’t, this 37% number just encompasses all of it.
Day 9 – Devise a Plan
Create your plan. It should focus on:
- Paying off high interest debt first,
- Setting up an emergency fund
- Save 20% of every paycheck
1 & 2 are done & done! I have no debts left above a 4.5% interest rate, and our cash on hand can cover more than 6 months of expenses, plus we have an HSA for medical emergencies plus Roth IRAs that we could tap tax-free in an emergency.
As for #3 (Save 20%), as I said in Day 8, the goal is actually to save 37%! The plan to achieve this stays the same: expenses come out of my husband’s pay, and everything I can manage to earn from home (while taking care of the baby) goes to savings.
Day 10 – Cut Down on Discretionary Spending
If dining out eats up a huge portion of your budget, set a weekly limit and stick to it.
Done! But, only because we had a baby. You’ll save a lot on eating out with an infant in the house! 😉
Discretionary spending just isn’t our “pain point” (earning money while taking care of an infant is!), so I’m pretty happy with how our discretionary spending (non-essential spending) is right now.
Day 11 – Think About Refinancing
Explore refinancing high-interest debt like mortgage or student loans. Anything over 4% should be looked at for a potential refinance. If you have ANY high interest credit card debt, this should be your top priority.
My student loans (4.5%) are my highest interest debt, and the only debt that’s not at 0% right now! I looked into refinancing them (more about that in a future post), but didn’t find anything promising in terms of lowering that interest rate right now. For the time being, I’ll just continue to have the payment auto-debited from my account for the 0.25% interest rate reduction!
Day 12 – 401(k) Check-In
If your employer offers it, make sure you are enrolled in the 401k. The max is $18,000 for 2017 for anyone under 50; and $24,000 for anyone 50+.
Unfortunately, no 401(k) is available to me or my husband at this time. However, I did use this time to request rollover paperwork for my 401(k) account from a former employer! I’m still on the fence about whether I want to do the rollover. Here’s why:
- The fees on the funds are a little higher than Vanguard (aren’t they always?) but not very high (especially when compared to other 401(k) funds!).
- They are proprietary funds that are only available to fund participants, so there’s no ticker symbol or way to track them in Mint or Personal Capital. This costs me time every month, checking the balance to put in my net worth calculation. (3-5 minutes per month)
- Having the 401(k) account gives me access to a completely free financial planner who is paid on salary (not commission!) if I ever want it. (I used to work in that department with those planners, so I know they’re good!)
So are the slightly higher fees and the inconvenience of having to manually check the account monthly worth the free access to a financial planner? I’m not sure! (Let me know what you think in the comments!) But I requested the rollover paperwork anyway, so I can choose one way or another once the paperwork arrives.
Day 13 – Set Up an Emergency Savings Account
Multiply your mandatory monthly spending by 3 and by 6 (so, if you spend $2,000/month, your range is $6,000-12,000.) Put this much money into a savings account separate from your everyday checking. This is not meant for fun or vacations – it’s for true emergencies (like a sudden medical expense or job loss).
Hint: Capital One 360 is a fee-free savings account with no minimums – perfect for an emergency fund! And you can use the opening bonus and refer-a-friend bonuses to boost your savings.
Done! Like I said in Day 9, we have cash for 6+ months of expenses. That’s waaaaaaay too much cash! That money should be earning better than the interest rate we get in our savings accounts. So, we decided to leave just 3 months’ worth in cash, and move the rest into investment accounts. (In a true emergency we could always sell those investments… though that would be sad. So that’s a last resort!)
I’ll have more to say about our reasoning for reducing our cash holdings in a later post. 🙂
Day 14 – Discover Your Net Worth
Use an aggregator like Personal Capital to find your net worth. The software can do this for you. It will total up your assets (bank accounts, 401k, brokerage accounts, and home value) and subtract any debts (credit card balances, student loans, car loan, and mortgage).
Done! Been tracking my net worth monthly for the last 10 years. 😀 It’s a really useful number, especially to be able to see progress over time. And it’s the main driver behind my major goals (such as “Hit a net worth of $38,901 by June 2017” – the goal I decided on last week!).
Dav 15 – Rest
You’re half way there. Good job! You deserve a breather.
Phew! Alright, if you insist. 😉
Alright, we reached the halfway point! How is the cleanse going for YOU so far? Do you feel like you have a good solid plan for your finances now? Let me know in the comments below!
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