It’s easy to maintain our physical well-being with diet and exercise but when is the last time you checked on your financial health? There are several aspects to financial health—many which Johnson Bixby can assist with diagnosing and treating. However, there are few things you can do on your own. Let’s take a look:
Set and maintain a budget
Money comes in, money goes out, but do you know where all that money is going? Setting and maintaining a personal budget can help you plan for expenses, reduce or eliminate expenses, save for future goals, plan for emergencies and prioritize your spending. Like any piece of a financial plan, the budget is something that needs to be monitored and modified periodically. Look at your personal budget throughout the year to make sure you are still on track with your spending.
Here is a budget template you can use.
Recognize Needs vs Wants
When you are on a budget you may need to choose between wants and needs as you prioritize your spending. The concept seems simple enough but the line between wants and needs can be easily blurred. “Needs” are the things you must have in order to live which include food, shelter, transportation, clothing, healthcare, etc. “Wants” are things that you would like to have but are not a necessity to survive.
It can be difficult to separate the two when you can rationalize an extravagant purchase by calling it a need. Purchasing a car is a good example of this phenomenon. You need a car to get to work and to provide transportation for your family, so you start looking to buy a high-end SUV. You “need” a car for transportation purposes but the high-end SUV costs twice as much as the more practical version, so this becomes a want vs a need. Only after your basic needs are met should you consider spending discretionary funds on wants.
Build and maintain an emergency fund
An emergency fund is just what the name implies: money set aside to cover unexpected costs. This fund is meant to cover items that are not in your normal monthly budget including major car repairs, medical expenses or expenses that need to be covered due to loss of income.
A typical emergency fund should be able to maintain three to six months of regular living expenses to ensure no gap in coverage of the “needs.” Keep in mind establishing an emergency fund is an ongoing process that may need periodic influxes of cash to maintain the required balance. Odds are you will use this fund in some manner over time but don’t feel put off at needing to replenish the account, you had the cash to cover the major expense and that’s exactly what the money is for.
Make time for your annual review appointment with Johnson Bixby
We are here to walk through your financial journey and help with the bumps in the road that may cause a change in your plan. Ensuring you prioritize your annual review meeting with your financial planner is important, so we can look at your overall financial health and keep you on track toward your goals.
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