Published in: Banks | Sept. 3, 2019
By: The Ascent Staff
A little work on a regular basis will leave you in better financial shape than ever.
Most people begin their day with a set of rituals to set themselves up for success. Personal hygiene, like brushing your teeth and combing your hair, is typically the first order of the day. Our daily regimen is meant to set us up for success and prepare for the day ahead. Whatever your ritual is, you've invested time perfecting it to the point that you can't do without it.
But what about your financial hygiene?
The Cambridge Dictionary defines hygiene as "conditions or practices conducive to maintaining health and preventing disease, especially through cleanliness." But we can take the same approach to our personal finances. Follow these nine simple weekly, monthly, and annual rituals to maintain your financial health and prevent catastrophes.
The first ritual is small but has a significant impact: Organize the mail every time you check it. Pick a place for the mail, such as a tray or basket by the door. Don't just drop the stack in the tray. Take five minutes to sort it and toss the junk in the recycle bin. Open anything that may look like it requires your immediate attention. Either deal with it right away or put it back in the tray to be dealt with at a designated time. Organizing this way increases your productivity and shortens the amount of time you spend dealing with and searching for bills when you're ready to pay them.
Next, pick a day of the week for paying bills, checking account balances, and reviewing financial goals. It should be a day of the week when you can dedicate one to two hours to focus on your money. That day is for your second ritual: your designated financial day regimen.
When you pay your bills, double-check the billing amount, even if you use autopay. Mistakes happen. The faster you report an error to the biller, the easier it is to receive a credit. Review transactions in all your accounts. Also keep an eye on your credit card statement and look for any fishy transactions. Card thieves will often make small initial purchases to see if the card is active, to link your account to another account so they can withdraw funds, or to make continual small withdrawals over several months, according to the Federal Trade Commission (FTC). Lastly, review your financial goals and track your progress. By tackling this every week, you cut down on the stress of handling your finances, and you know where you stand every week as opposed to at the end of the month.
There are several ways to simplify these weekly rituals. Many banks have free online services that allow you to pay your bills directly to the biller electronically, with no need for stamps or snail mail. If not, there are several free autopay services on the internet. You may also consider using tools such as Quicken (paid) or Mint.com (free) to help with paying bills, reconciling accounts, tracking transactions, and setting and tracking goals. A simple spreadsheet or a notebook also works if you like to keep it old-school.
Your first monthly ritual is to review your bank and credit card statements and balance your accounts to make sure you and the bank agree on the amount of money that's in the account or owed on the card. One of the biggest benefits of using a program such as Quicken or Mint is the ease of tracking your transactions, which are shown in the app. All that's required of you is a quick scan of the transactions, and these programs will reconcile the accounts for you.
The next ritual is to save enough money to reach your monthly goal. Ideally, you should be paying yourself from every paycheck through direct deposit to your savings account and enrollment in an employer-provided retirement account. If neither option is available, you can contribute to your savings and investment accounts on your own. Determine a dollar amount to contribute to savings and retirement investments, and set it to be withdrawn from your checking on the same day every month automatically. Even if it's $5 per pay period, deposit something in your accounts to build the habit.
Third, review the performance of your retirement and investment accounts to identify performance trends over time. Don't modify your investment strategy based on a single month's performance. The stock market goes through ups and downs, but over the long term, it has consistently gained value. You should also use a retirement calculator provided by your broker to see if you're saving enough to reach your target retirement savings.
Defining "SMART" goals for the year is the first ritual. That means setting financial goals that are Specific, Measurable, Achievable, Relevant, and Time-Based. This allows you to create a roadmap that will keep you on track and making data-driven decisions. Write down your goals in a notebook or on a vision board.
As an example, let's say you want to pay off a $3,000 credit card balance in 12 months by paying $250 per month plus interest. You've identified a specific goal that's relevant to your finances because it will save you from future interest charges and improve your credit score. It's achievable because you've chosen an amount you can afford to pay each month. It's measurable because you can track your remaining debt from month to month, and it's time-based because you have a firm schedule in mind.
For the second ritual, review the previous year's monthly expenses to see where you can save money this year. Shop around to see if you're getting the best car and home insurance rate. Call your credit card companies and ask if they'll lower your interest rates or waive your annual fees. Discontinue any services you aren't using consistently or that are no longer of any interest to you.
The third ritual can be done any time, but at least once per year you should check your credit reports and scores. Review them for any errors -- fraudulent charges, mistakenly reported late payments, etc. -- and correct them. Even if you're not in the market for a new house or car, a good credit report is important. Potential employers, landlords, and utility companies check credit reports, for example.
Several credit cards provide your credit score on your monthly statement as a courtesy. Consumers are entitled by law to one free credit report per year from the three major credit-reporting firms -- Equifax, TransUnion, and Experian -- by visiting AnnualCreditReport.com.
The last ritual is to meet with a financial advisor. While they can be pricey, certified financial planners (CFPs) are a good bet, because they've undergone extensive training and can help you with every aspect of your personal finances, including taxes, college funds, retirement savings, life insurance, and so on. Shop around, as some CFPs require that you have a significant amount of assets to manage.
Dealing with money and finances can be confusing and daunting. But if you adopt these 10 rituals for perfect financial hygiene, you'll soon start to notice some changes. You'll be able to quickly recall your financial outlook, including how much you owe, your assets, and your goals. You'll also experience a feeling of accomplishment as you achieve your financial goals, and in turn you'll grow more confident in your ability to make smart financial decisions, giving you a greater sense of control over your future.
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