Worried you’re mismanaging your money? Give yourself a financial checkup in 7 simple steps

As kids and teens gear up for “back to school,” now’s the time for adults to go “back to basics” when it comes to their finances. Give yourself a financial checkup. Look at the current state of your finances and figure out what you need to do to get — or stay — on track so you can reach your financial goals. 

How are you spending, borrowing, saving, investing and protecting your money? What changes should you make now to help cope with the impact of rising prices, higher interest rates and volatile financial markets on your wallet and investments? 

1. Find your personal inflation rate. First, you should figure out how the impact of inflation and rising rates on your budget.

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Even though inflation is at a 40-year high, we don’t all spend the same amount of money on the same things. Gather bills and bank statements to see what you’ve spent on food, housing, gas, entertainment, apparel, education and other items over the past 12 months. Then, calculate your own personal inflation rate by doing this:

  • Add up your monthly spending for last month and what you spent for the same goods and services a year ago.
  • Subtract your total spending for July 2021 from July 2022.
  • Divide that difference by your monthly expenses for July 2021.
  • The result of that equation is your personal inflation rate.

Whether your actual number is more or less than the government’s latest inflation rate isn’t the point. You should review your expenses to see what you’re spending and what you can cut out, reduce or negotiate to a lower rate.

Become a savvier spender

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Once you’ve calculated your personal inflation rate, it’s time to get savvier with your spending. 

2. Avoid “lifestyle creep.” You may have gotten a slight raise or moved to a new job making more money. So why not treat yourself to take-out most nights of the week? You’re working so hard you don’t have time to cook. If those meals and delivery costs have doubled your food costs, but your take-home pay hasn’t kept pace, you may be a victim of “lifestyle creep” as the cost of your lifestyle increases faster than your income. See what expenses you can reduce or cut out, like memberships, subscriptions or even travel. 

3. Use only one credit card. Get organized so that you have a better handle on what you’re spending. If you have all of your transactions in one place, it will be easier to keep better track of your spending. Have one credit card in your wallet to swipe at the store or use for online purchases. If you use a digital wallet (Apple Pay or Google Wallet), use that same card for everything you buy. 

4. Set limits and alerts on cards. The limit for purchases on a debit card can vary from a couple hundred to a couple thousand dollars a day. The bank generally sets that limit, but you can ask for a lower limit if you think that will help you reign in your spending. Some credit cards will also let you set your own spending limits. You can also sign up for alerts (email, text message, push notification) to let you know when you’ve made a purchase over a certain amount.

Keep saving and investing

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Limiting your spending can be smart with rising prices and higher costs on basic goods and services. How should you deal with the uncertainty of the economy and your investments?  

5. Have a mix of stocks, bonds and cash. You should have a mix of stocks, bonds and cash. An adequate emergency fund in cash reserves to cover living expenses is critical. Start by trying to stash away at least three months’ worth. You also need to have a mix of stocks and bonds (mutual funds and/or exchange traded funds) to make sure your long-term savings keeps up with inflation.

You need a mix that’s appropriate for the amount of risk you are willing to take and the amount of risk you need to take so that your money can grow and you can afford to live comfortably in the future. Consider a target-date fund that invests in a mix of stocks and bonds and automatically rebalances toward less risky investments the closer you get to your retirement or another “target” date.  

6.Check out online investment tools. You can consult online investment tools offered by major brokerage firms, as well as non-profit organizations, to help you understand some of the basics of investing. Also, talk to a representative from your employer’s retirement plan — if one is offered — to find out more details about how you can take full advantage of investments offered at your workplace. 

7. Work with a financial advisor. A financial planner can help you set up a strategy that will be able to weather market volatility and still reach your goals by having your money divided between different types of assets.

Look for a certified financial planner in your area by going to the CFP Board, Financial Planning Association, and National Association of Personal Financial Advisors websites. Your first meeting should be free. Talk to a few advisors to find one that you trust will fit your needs.

Sophie Tremblay

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