The new year could bring a new you. Despite what the poets say, money, or at least financial security, can be one of the most important steps toward happiness. On the other hand, money mismanagement and debt can result in financial anxiety, which can cloud decision making and lead to a bad cycle.
There are three basic moves those who want to be smarter about finances should make: gather information, plan and execute.
Some may think making a personal or household budget is too tedious, but it's the most essential part. I suggest itemizing spending into 17 categories and ball-parking what you think you spend each month versus what you actually spend — and then what you'd ideally like to spend for each. It may sound like a lot, but it can usually be accomplished in under 30 minutes each month.
You'll see how extras can sneak in. For example, you may think you spend $3,000 for housing, but don’t forget to add about $120 a month for repairs or furniture. If you're planning to take a vacation post-omicron, remember to include expenses like additional cell phone charges, yoga classes and fancy coffee drinks in the total.
Next, compare your spending to your income. No judging. Money management requires facts — not guilt, rationales or backstories. The exercise may be cringe-inducing, but people who don’t budget are more likely to fall into debt. Budgeting is like sit-ups: First pain, then gain.
Once you have a clearer picture, it may be helpful to bring in a third party. Any adult, regardless of age or income, can benefit from a session with a non-conflicted, and importantly, fee-only planner they can trust. A fully fledged financial plan can cost thousands, while a session may be a couple of hundred dollars. Avoid conflicted advisers who are brokers, since they don’t advise; they sell investment products. If you are young, low-income or in debt (or all three), try low-fee non-conflicted advisers, many of whom are subsidized by a nonprofit or government agency.
