"Things" You Must Do If you are Suddenly In Charge of Your Finances
As 2016 comes to a close, was it the year when you suddenly faced the terrifying reality of managing your own finances? Did you become a widow, a divorcing woman, or a smart lady who said to herself, “It’s time for me to get real and start planning for my future.”? Regardless of how you will end this year, now that you need to take charge of your own finances first thing – take a deep breath! Embrace this learning process as a positive and empowering addition to your library of knowledge and emotional well-being. After you’ve gathered yourself let’s roll up our sleeves so to speak, and let’s discuss where to begin:
Get organized. Start your financial “taking over” process by understanding what you have TODAY. Just as the arrow on the map in the mall always says YOU ARE HERE, knowing where you are today is key to planning out where to go to next. So start by collecting reports such as bank statements, recent tax returns, insurance policies, retirement accounts and estate and trust documents. You will soon see why you need this step and the importance of maintaining your incoming data. Take this time to create a list of passwords and log on instructions to sites that involve the financial items listed above. Keep this newly minted list in a safe place, but make sure someone you trust knows where it is as well.
“If you don’t know where you are how do you know where you’re going?”
Define your goals. Once you know where you (YOU ARE HERE on the map), identifying your goals will give you the destinations. Allow yourself to dream big with goals such as a dream vacation without a budget, to the realistic goals such as “I want MONEY for a down payment”, or “I want to have a fun life when I retire -- how much money will I need?” Knowing your goals will give you parameters and focus on how to move forward. Knowing your goals directs you to where you need to go.
Know what you OWN. Sounds simple, but do you know where every items, asset or thing that you own or has your name on it is kept? How it is titled? What is its value and how do you access it? If any of your answers is, “Umm, I’m not sure,” you’ve just reinforced your vital need to go through this process. Refer again to Step 1 and list the assets you have. The more precise your statements and documents are, the more accurate this part of the equation as well as steps 4, 5 and 6 will be.
Know what you OWE. Again, what accounts have your name attached to them, meaning you are obligated to pay back monies that were borrowed to perhaps buy a house? What credit cards are issued to you? Car loans? Student loans that are yours or that you co-signed? Do you know what each debt charges you in interest? Do you know when you have to pay it back? Again, “Umm, I am not sure” is not the answer you want. The good news is, you are going to change this.
Know what you are spending money on and how much. EXPENSES include both the essentials as well as the discretionary which is best looked at the charges that you can live without or change when push comes to shove. Services such as doing your nails yourself versus having them done, or cutting back on new shoes acquisitions are just two examples although I know to some they are mandatory purchases but let’s face it, if you really have to cut back temporarily these really are discretionary and not mandatory. Learn to hold yourself accountable to separating out the “must-pays” from the “we can cut this expense for now” when calculating your cash flow. There may need to be some short-term compromises as you get your financial house in order. And that’s all right. You can do this.
Know what you are earning. INCOME can come from several sources not just your job. So don’t forget to list interest income from investments, possible royalties from work sold in the past, residual income, and others.
Be tax smart. Create an environment of teamwork between your accountant and your financial advisor so that together your investments and taxes are aligned to pursue more efficient returns. Begin by making sure each one has the other’s name and email address. Encourage them to connect.
Avoid common investor pitfalls. Try not to panic at every news cycle or market change by switching course within your portfolio. In other words second guessing yourself and your team will invariably mean you’ll buy high and sell low which is exactly the opposite if what you want to do.
Get involved with the pros. Meet at least quarterly with your financial advisor who should be a fiduciary. This term means he or she is structured in a practice that is meant to have your best interest at the core of her/his advice. In other words getting commissions paid out is not the priority, aligning with your needs is. Working for you and with you should be the goal. You are on the right track with the right advisor if s/he asks you lots of questions, not just about now, but those long term goals, answers your questions with patience, and is willing to educate you no matter how silly you think your question may be. Finding the best financial advisor for you and your needs -- one who understands you as woman in the crossroads of your life -- will give you the sense of security you need as you move forward into your new and exciting next chapter.