Much like getting in shape, living a healthy financial life is easier said than done. If you’re like many people, finances may overwhelm you. How do you replace the fear with a road map and resources to start you building your plan?
The two biggest barriers to getting financially fit are finding the time and knowing how and where to start. Demands of career and family leave little time to learn how to manage finances.
Set aside a day soon to learn more about your personal financial situation. In that short time, you can learn enough to tremendously affect your financial life.
Here’s your schedule:
A cup of coffee and a good book. Start with a healthy breakfast; your brain probably operates better on fuel. I know mine does.
Next, take a couple of hours to skim a good book about personal finance. The goal isn’t to become a financial expert in a few hours but to learn more about what you do and don’t know about your own financial situation. Two books top my list.
Rick Edelman’s “The Truth About Money” is a comprehensive look at personal finance. Beyond just numbers and calculations, “Truth” comes complete with reasons that help you better understand your money.
The book opens with a quiz to show how much you do or don’t know about personal finance. Though the book weighs in at 86 chapters (don’t let that scare you off), Edelman does an excellent job steering you to the information most relevant for you and includes a handy guide organized according to circumstance or need.
For instance, he suggests that those in debt read the chapters “Three Ways to Create Savings,” “Understanding Your Credit Report” and “How to Get Out of Debt.” He makes similar suggestions of chapters if you’re married, single, retired, aging or undergoing other life changes.
The second book, “The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions” is by Carrie Schwab Pomerantz, daughter of Charles Schwab. This must-read for anyone approaching or in their 50s excellently addresses money issues in that time of life, from putting kids through college to realistic ways you can still save for retirement. Pomerantz tackles these and other tough topics with straightforward advice and useful resources.
Take a break and digest what you learned. After lunch, take a few minutes to make a list of what you learned and your remaining questions. Include issues you believe you still need to address, such as saving for college or reviewing insurance. This list provides the basis for setting your goals.
Devote the next few hours to two important details: tracking your spending and knowing how much you are worth. Do you really know where all your money goes? Everyday expenses or habits, like spending $100 every time you eat out, are stealth budget busters that quickly add up.
Track your expenses with tools such as Quicken.com or Mint.com. Input your expenses for the past six months to a year. When you see exactly where your money goes — shopping, eating out or just too many indulgences — you see right away where to cut spending or re-prioritize to save more.
Next, create a net-worth statement to look at what you own — and owe, even if you think you know your financial picture. Your statement simply lists all your assets such as bank, brokerage and retirement accounts, as well as the value of your home, car and other possessions. It also lists your liabilities: your credit card balances, home mortgage and car or student loans, to name a few.
The difference between the lists constitutes your net worth, and knowing it is the key to establishing personal financial goals and the baseline for measuring progress as you work to meet your goals. If you’re unsure how to start, Charles Schwab also offers a great worksheet.
Most people who take a day like this feel more empowered regarding their financial needs and goals. Knowing where you stand helps you know what to do next, rather than worry about loose financial ends.
Barry Glassman is the founder and president of Glassman Wealth Services, a fee-only financial planning firm in McLean, Va.