Several of us at Halpern Financial have become fans of the new TV show Tidying Up with Marie Kondo. In this show, people follow the “Konmari” method of cleaning, which involves purging clutter, only keeping items that “spark joy”, and following systems to keep the house clean. This all sounded very familiar to the Halpern Financial team. This method is incredibly similar to the process of budgeting and cleaning one’s financial house. It is all about prioritizing what you find important to achieve your goals and having a system to maintain progress.
Typically, we recommend taking an inventory of all your spending and saving as the first step to tidying your budget. Exporting your monthly bank statement to Excel (or viewing it in a more visually appealing way on the Bridge Financial Dashboard) is just like gathering up the clothes from your closet and throwing them on the bed to figure out which items to keep and which to eliminate. Often you will find some surprises in this process—like a subscription you didn’t realize you were still paying for, or a cost that can be minimized. You will see how much you spend on core living expenses versus “nice to have” items. Even if not all of your spending “sparks joy,” decide which line items to keep and which to get rid of. (Most people don’t find paying their bills joyful, but it is essential to keep the lights on!)
Inventorying your expenses is the first step because most people do not really know what their core monthly living expenses are each month.
A System to Maintain Financial Tidiness
Once you have a figure for your core expenses (essentials, not discretionary items), use this amount to estimate how much you need to keep in cash reserves. Typically, we recommend keeping one month of core expenses in checking and two months in savings—but if you have variable income (perhaps you are paid via commissions or the majority of your compensation is via bonuses), you may want to keep up to five months in savings.
This provides an excellent framework because it gives a guidepost for saving and spending. If you find yourself pulling from savings too frequently, it means you need to rein in the monthly spending. If you find yourself with excess reserves, then it’s a good time to add a lump sum to the portfolio.
Truthfully there is no “one-size-fits-all” answer to personal finance. There are many tips and tricks, so you need to figure out which works for you. Each of us at Halpern Financial has strategies we use in our own lives to keep our financial houses tidy.
Financial Tidying Tips from Your Halpern Financial Team
Keep tabs on your automated subscriptions: Automating your billpay can be very efficient—but you do need to do a little tidying every now and then to make sure you’re not paying for services you don’t need. For example – my kids had a Netflix account and so did the family as a whole!
The 24 Hour Rule: In my house we have a rule for Amazon shopping. Add what you want to the cart, then think on it for a day or two (assuming it is not an item that is needed ASAP). Then, if you really still want it – do it. Most of the time, cart items are deleted! This really works. (For some sites, you will actually get a discount code for waiting to buy because the company is afraid you will abandon your shopping cart!)
Be sure the credit card you use is prudent! The Fidelity cashback card is a great example – 2% cash back unlimited and not sorted by type of purchase. Best part though – a credit of 2% on all my spending is automated monthly right into my investment account!
Being AWARE is being TIDY and this brings me JOY. I review transactions periodically (every few days) on Mint to make sure the transactions are categorized properly. Once a month I will look at cash flow by category and determine if any adjustments are needed. This process not only allows me to be aware of where cash flow is going but also to look out into the future to determine when more cash flow is freed up so that I can increase savings. For example, playing off a car or your child graduating. On a quarterly basis, I review our net worth as a way to track progress and encourage savings. A net worth statement is a great way to take a step back and measure progress that you have control over.
Keep sufficient cash reserves so short-term emergencies don’t derail your long-term goals. The cash reserves system we recommend to our clients has given me so much financial confidence and peace of mind. Recently I thought I would “save” some money by trying to fix the handle in my shower. Well, I was able to replace the handle but in the process, I broke something else and the shower would not turn off! As it turned out, we needed quite an expensive plumbing repair and had to shut off the water in our house for 2 days. Because we had sufficient reserves, I was able to laugh at my DIY fail rather than stress about how to pay for it. Most importantly, this short-term emergency did not interrupt my long-term savings to tax-deferred and after-tax investment accounts.
Keep tabs on the day-to-day, but don’t forget to zoom out to the bigger picture. To stay organized, I use a system where I check on the smaller cash flow items at least twice a month to ensure accounts are appropriately funded for upcoming expenses. Then once a month I take a birds-eye view and look at my net-worth statement. I use Bridge financial software to get a consolidated view of all my assets and debts. For me, it is motivating to see my net worth grow over time, so I use an excel spreadsheet to track historical information and chart this over time.
A strategy to make your spending safer, and earn cash back at the same time. One strategy that has helped me from a ‘tidying’ standpoint, and has saved me excessive phone calls and/or paperwork...is having two separate credit cards.
- A card for all regularly recurring expenses. I do not use this card ANYWHERE else...thus significantly reducing the chances of a hack.
- A separate rewards credit card, which I use for all other ‘out and about’ expenses. In the event this card gets compromised, at least I don’t have to re-start all my regularly recurring expenses since those are all on a separate card.
For both cards, I have the rewards accumulate then deposited directly to my savings account, so that is also helping my savings habits in an automated manner.
Having this system gives me huge peace of mind….and I would go as far as saying it brings me joy! I love knowing that my system prevents monthly cash flow errors, and I really love working towards my financial goals and being able to visually see my progress over time.
Take inventory of your accounts. Here is one financial clean–up that I experienced recently…..I found an ancient Roth account statement that my husband had forgotten about, every time I would receive the statement in the mail, I noticed the balance of the Roth was the same balance on one of our charge cards that had a high interest rate. I asked him to make the call and have the check mailed to him so that this debt could be paid off. He did, and now we are that much closer to being debt free! Got to get away from the cards with high interest unless you plan on paying off every month!
Be intentional about needs vs. wants. I review my budget by downloading all my expenses onto an excel spreadsheet. I then like to categorize them by ‘need’ & ‘want’...for example, paying rent is a need and dining out is a want. Then I review all the wants I had and see if there is anything that can be cut back a little. I use credit card for almost everything to earn points (free money). I normally review the budget semi-annually and see if any changes can be made for the future.
Doing this gives me joy as it helps me confirm that I am not spending too much and if I am, then it helps me control my spending. Either way it is a good thing to do for me.