Best practices for a healthy financial life, part 1

Barry Glassman, CFP
WTOP Financial Contributor

WASHINGTON — Much like changing your diet and working out to lose weight, getting in shape financially is easier said than done. When it comes to understanding and feeling confident about finances, many can feel overwhelmed.

That’s understandable: When you think about all of the things with a dollar sign that affect you — saving, investing, insurance and estate planning — there’s a lot to consider.

The goal of this series is to remove the “financial fear factor” and replace it with a roadmap and resources to start you on your way to building a financial plan.

For many, two of the biggest barriers to getting financially fit are time and knowing what to do and where to start. Especially for working professionals in the D.C. area, time after a long day at the office is often scarce and is usually dedicated to other responsibilities.

That is why my first piece of advice is to take a day and hire yourself. Sometime in the next few months, set aside a day to learn more about your personal financial situation. Let’s face it: Most people would rather do almost anything on a personal day than think about their finances, but the things you will learn in just one day will have a tremendously positive impact on the rest of your life. In the end, it’s not a bad trade-off.

Get started with a cup of coffee and a good book:

I recommend that you start out with a healthy breakfast; your brain will operate better when it has fuel. Next, take a couple of hours to skim through a good book about personal finance. The goal isn’t to become a financial expert in a few short hours, but rather to learn more about what you do and don’t know about your financial situation.

Two books that top the list I give to clients include one that’s been around for a long time and one that was recently published. The first, “The Truth About Money,” is a comprehensive look at everything about personal finance.

But it’s not just numbers and calculations; it’s a roadmap with reasons to help you gain a better understanding of your money. The book starts with a quiz to show you how much you already know or don’t know about personal finance. This makes it easy to skip the chapters where “you got that,” and focus your attention on where you need the most help.

While it weighs in at 86 chapters (don’t let that scare you off), author Rick Edelman does an excellent job of steering the reader to the information most relevant for his particular situation. Edelman includes a handy “How to Use This Book” guide, broken out by circumstance or need. For instance, he suggests that those who are in debt should read the chapters “Three Ways to Create Savings,” “Understanding Your Credit Report” and “How to Get Out of Debt.”

He makes similar suggestions on specific chapters for those who are married, single, retired, aging, etc.

My second book recommendation is “The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions,” written by Carrie Schwab Pomerantz, the daughter of Charles Schwab. You would think that she would know a thing or two about money and investing, since she was raised by the man known for breaking down Wall Street barriers and giving individual investors affordable access to the markets. This is a must-read for anyone in, or approaching, their 50s.

Pomerantz does an excellent job addressing the financial issues many face during this time of life — from putting kids through college, to realistic ways you can save for retirement if you really haven’t started. She tackles these and other tough topics with straightforward advice and useful resources. You’re left knowing a lot more about what you can do, and should be doing, at this stage of life, and why.

Take a break: Digest what you’ve learned while digesting some lunch:

After lunch, take a few minutes to make a list of what you learned and what you still have questions about. Include the issues that you believe you still need to address, such as saving for college or reviewing insurance. This list will be the basis for setting your goals — a topic I tackle in my next article of this series.

Spend your afternoon getting to know your numbers:

Devote the next few hours in the afternoon to doing two really important things: tracking your spending and knowing how much you are worth.

Do you really know where all of your money is going? If you’re like most, myself included, the answer is “not really.” It’s the everyday expenses or habits, such as spending $100 every time you go out to eat, that are the stealth budget-busters that quickly add up.

That’s why I recommend you begin to track your expenses. It’s so much easier to do this now with tools such as Quicken.com or Mint.com. These two-minute videos show how easy it is to use Mint.com:

Quicken also has videos to help you get started, and its website is full of short articles and great tips, from How to Budget for Your Dream Vacation to 20 Small Ways to Save Big.

To get a good look at your spending habits and where your money is going, start by inputting your expenses for the past six months to a year. Not only is it an eye- opening experience, it’s an essential step to living a healthy financial life.

Think about it this way. What if all of the food that you had eaten over the past year was laid out on your living room floor? You wouldn’t need a nutritionist to tell you that you have a snack food problem when you see the mountain of Doritos piled in front of you.

The same is true of your spending. When you see exactly what you spend your money on — whether shopping, eating out or just too many everyday indulgences — you’ll know right away where you can cut back your spending or reprioritize to save more.

Next, it’s time to take a good look at what you own and what you owe by creating a net worth statement. Even if you think you “know” your financial picture, it’s still important to see this on paper.

Your net worth statement is simply a list of all your assets — bank and brokerage accounts, retirement accounts, the value of your home, car and other possessions, etc. — and your liabilities, such as outstanding credit card balances, your home mortgage, and car or student loan debts. The difference of the two is your net worth.

Knowing your net worth is the key to establishing your personal financial goals. It’s a baseline for measuring your progress as you work to meet your goals. You may have to do a bit of digging to find this information, but start to collect these documents now so that most of your hard work will be done before you begin.

If you’re not sure how to create a net worth statement, Charles Schwab MoneyWise is a great resource. Download the Net Worth Worksheet to help you quickly and easily calculate your net worth.

Wrap up your day:

By the end of your “hire yourself” day, you should have accomplished the following things:

  1. Confirmed the things you know and what you’ve got covered
  2. Learned the areas of personal finance on which you need to spend more time
  3. Made a list of issues that you still need to address, such as creating a will, establishing a college savings plan, saving more for retirement, etc.
  4. Examined your spending habits and set up a way to track it going forward
  5. Calculated and faced your net worth

After taking a day to “hire yourself,” you’ll start to feel empowered rather than overwhelmed. Getting your arms around your finances is like getting a hug. It’s reassuring to know where you stand because then you’ll know what you need to do next rather than worry about all your loose financial ends.

My next article of the series, I’ll help you to set financial goals and prioritize what’s most important versus what’s most immediate.

Editor’s Note: Barry Glassman, CFP

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