Do you need a financial makeover?
When do you know it’s time for a change financially? It’s not like you suddenly look in the mirror and see that your haircut has grown out or put on a pair of pants and find that they now struggle to contain your new (ahem) curves. As I was reading Health and Dollars: A challenge at Funny about Money, I realized: It’s hard not to see the signs of neglect to your body, but financial problems? Easier to miss, if not willfully ignore. And ‘flabby finances’ can make it difficult to pinch pennies should the need suddenly arise–much like poor physical condition can make it all but impossible to join into an pickup game or go for a jog. . .
Lately, I’ve been thinking I need a financial makeover of sorts. It’s taken a long time to notice because bank accounts don’t come with noticeably pale cheeks and retirement accounts don’t have bellies that hang over their jeans. Still, my finances are a bit sloppy lately. How about you? Are your finances in good shape, or could they use a gym membership. . .or a diet?
Five ways to tell if you need a financial makeover:
I’m guilty of at least three of these lately. Maybe you have some other tell-tale signs of a need for serious financial change. Please feel free to share them below.
1. Emergency fund issues!
I’d argue the emergency fund is one of the most important parts of the financial picture. There could be lots of problems with an emergency fund. It could be underfunded (or non-existent). It could also be saved in an inappropriate form. . . which is our case. Right now, a large part of our ‘emergency fund,’ roughly 17% of our net worth is sitting in checking accounts. Not too smart. The money we have in the US would be better off in laddered CD’s–here in France, we’re better off putting it into a variety of savings options offered by banks. A little interest would be nice, eh?
2. Unorganized Accounts, account holders and beneficiaries:
DH and I are on most of our accounts together, however, since his car accident, we realized that there were a few accounts on which I was not even named. This meant that when one of the accounts ran out of money and DH was in the hospital, I actually couldn’t make a transfer to bring up the balance. Now there’s a mess waiting to happen! In recent weeks, we’ve been trying to right this and have taken the following steps:
- Making sure both of us are on all accounts in case of another health emergency.
- Making sure beneficiaries of accounts (especially retirement accounts) are updated.
- Making sure all account records are accessible to both of us in the same place! Since we’re an international couple and since we married once many of these accounts were already in place, we’re still getting our act together on this.
3. Investments/placement of money that doesn’t make sense:
Do your finances have any of the following mistakes? (Once again, I’m guilty of a few of these myself!)
- Money you intend to spend soon in a high-risk investment.
- Money you intend to invest long term in an investment with returns that are too low (yes, perhaps also too low of risk). Yes, I actually recently discovered that some of my retirement savings are set to earn 2%. . .probably not a wise way to guard against inflation for the next 30-40 years!
- Large amounts of money placed in accounts that charge a fee and aren’t paying interest!
- Too much of the emergency fund stored in the wrong currency. Um, this may be a personal problem and to an extent it’s intentional, but the last thing we need is to be forced to put our funds through a currency exchange at an inopportune time–and is it just me, or do emergencies always seem to happen at inopportune times?
- Excessive non-emergency savings stored at low interest while you have higher interest debt in another place.
4. More money going out than coming in (or worse, you don’t actually know!)
Seeing as DH and I enjoy the challenge of being cheapskates much of the time, we don’t currently have this problem;) But in my humble opinion, spending more than you earn each month (or just plain old not knowing!) is a recipe for disaster. I may be busy right now, but I am still keeping tabs of our cash flow by tracking our expenses.
5. Unbridled and unexamined accumulation of debt:
Ever been in this situation? you don’t have the money, you need something, you cringe and slap it on your credit card. . .and then you don’t even want to look at the card later! I mention this because I’ve seen it happen (and frankly, I’ve lived through periods like this myself). I can remember thinking, “Oh, it’s bad, ok! I’m not going to look.” But frankly, being familiar with your debt, how fast it is growing and your options for repayment is essential to recovery.
Do you have any financial makeover plans?
I’d be curious to hear if anyone else is working on getting his/her financial house in order–or if you’re simply much more organized than I am. Feel free to add any of your own goals or tips! I intend to work on our account organization and documentation, while also making sure that our different funds (emergency, down payment, retirement) are invested in the right place. What are your financial plans?
Great points, especially about the organization of accounts and files.
On emergency funds, I’ve argued before about why it’s a good idea to break this concept down into different kinds of savings and what I call a “slush fund” (not a new term, but for personal finance).
eg., a long-term, highly capitalized emergency fund that you do not touch for small or negligible “emergencies” but you keep for health care or life-changing events. You don’t want to jeopardize this fund for things like car repairs.
on the other end, keeping a smaller, cash-only fund as “overdraft” and for budgeting errors. etc.
It’s an ideal set up, and I think I came up with 4 or 5 levels of funds, so it’s not the kind you can implement right away. It might be too complex, but if I worked to pare it down I’d probably still need 3 levels, stretched out over the short, medium, long term, etc.
We tend to use a spreadsheet to track all income & expenses for each month. We have added columns to calculate average expenses over the month and comparisons to previous years.
This could be used for detailing investments & other accounts to figure out growth/loss over time without having to constantly fumble through papers.
Great post!
Laura–’total banking simplicity’ this is what we need to work on too. Too many accounts, too many countries. . . argh! Technically it doesn’t cost us money, but it’s a lot of work. And I like your tip about keeping all the passwords in one place. If anything happened to me, DH would struggle to catch up with our US banking!
MoneyEnergy–I like the idea of dividing the emergency fund into say, layers of direness. A little in the checking account is great for fighting those errors you mention, but having several accounts with different levels of ‘accessibility’ might be a smart way to go. 3 sounds like a good short term plan. I’ll have to check into more of the French options. . .I’m pleasantly surprised with some of the savings and investment accounts available here.
Olivamor–I love your idea of taking the monthly budget tracking to a new level with investment tracking–and keeping it all on the same spreadsheet. I think we’re going to have to set that up! I also like that you include yearly/monthly comparisons in your spreadsheet.
Sounds like you need some simplicity in your accounts 
Quicken tells me I have a total of eight accounts in all. There again, working across two countries won’t make that easier. Varying levels of emergency fund account strike me as too much hassle, particularly at current rates of interest
I’m shocked that European banks can get away with not paying interest but charging fees – my Euro account does that, where no UK bank I have dealt with does (provided the customer is in credit, which I understand you have to be in France)
I laugh about the not knowing part.
Here’s my favorite story. Before I married my wife, we were traveling to Thailand. We were in Singapore’s Changi airport and she went to the ATM. When she came back from collecting some cash, I asked her if we had gotten paid. We both work at the same school in Singapore, and I figured that she’d know whether or not we got paid by looking at the account balance.
It was a “bonus month”—where she earned $10,000.
“Did you see your balance?” I asked.
“Sure,” she replied.
“So, did we get paid?”
She saw her balance, told me what it was, but didn’t know whether or not she had gotten paid.
That is a great post! And yes, I do need a financial makeover. Ever since the DH and I split our finances, I just haven’t found my groove for making express movement on paying down that debt. But, I plan on doing a financial makeover next weekend: making sure my kid’s clothing/school fund is in place, increasing areas that need a boost, making sure all the CCs are still out of my purse, my snowball schedule is still on track, etc…
Definitely have that emergency fund in place! Its such a secure feeling to have one.
I think I just need to stop spending so much money every month and save more. Have spent on average $2,000/month for the past 3 months on things, and it’s getting out of control!
I need to “go broke to win big” again.
Best,
Sam
Ermine–actually, accounts here in France are kind of funny. The checking accounts have fees that drive me nuts–I mean, I’m letting them have my money for free, they can give me a frickin checkbook, right??? But then again, I have to admit that we have access to some insured savings accounts that are giving us 3-4% interest right now. So it’s not all bad, just very different–and we need to take advantage of it accordingly. I think it’s interesting that Euro accounts differ from the ones you have in the UK–sounds like the banking there is more similar to US banking? And yes, we need to simplify. . .but we’re also adding accounts due to our funky retirement saving situation (both of us have saved in both countries). Hah! We’ll figure it out.
Andrew–thank you for sharing that story. I actually hesitated on putting that bit in thinking that so many of my readers would be more savvy than that. . .but so many of my friends/ family are not. And I’ve been guilty of such crimes myself!!
MoneyFunk–yes, even an unorganized emergency fund is better than no emergency fund! It does feel very reassuring. It’s interesting that you and your husband have just separated your finances. Is that a business thing? I ask because we’re in the midst of finally combining it all–we hope it will be easier to manage that way?
Financial Samurai–that does seem high, but at least you know what you’re spending and where. I know some people who spend 10k a month on ‘living expenses’ but can’t tell me exactly where it all goes. Scary. My husband and I realized our spending on ’stuff’ was too high–particularly back in our Silicon Valley days–I think the Bay Area just breeds spending for fun. We put ourselves on a ’stuff’ budget–$200 per month per person. It was kind of funny when DH realized that he’d have to combine several months worth of his stuff budget to keep buying new toys at the apple store, but I had to learn the same lesson myself–just with different toys.
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I am a state of constant financial make over until I get it right. Right for me is when it works. When I don’t spend more than I make (which is not always the case, which is why my savings keeps getting smaller).
I have to use the cash system for groceries, because nothing else works. So tonight I will sit down and tally what I have already spent this month and then I will figure out what I have left to spend this month, it will go in an envelope that I will work very, very hard to stretch.
Groceries are my biggest issue.
I just got word that harvest at the CSA could be just 3-4 weeks away (and I couldn’t be more excited). I am planning to calculate the mileage and pay for the additional gas out of my grocery budget (but hopefully still have extra money).
I have also decided to change my shopping habbits. I like going to the Public Market weekly and I can get most of my groceries there. So from now on I will go to the Public Market weekly and get as much as I can there. Then once a month I will go to Aldis (and get certain things there, sugar for DH – can’t find white organic cane sugar at the co-op, corned beef hash – I do plan to learn to make this for DH instead of buying it, mix-aide – I am going to work hard to convert him to a lemonade/limeade drinker and give him more iced (real iced tea) flavor varieties, and tp and paper towels – Aldi’s has started carrying recycled tp in card board boxes not plastic ans same for the paper towels so I want to get it that way. I have asked Seventh Gen to package theirs in cardboard but so far no luck. Then on the 10th of the month when I have an additional 10% shareholder’s discount I will do my co-op shopping, everything else I will learn to live without.
I am hoping that this will actually create an excess in the food budget that I can then use to purchase my winter meat stores.
Tree–winter meat stores sound like a great idea. It sounds like you’re turning the grocery shopping into a discipline of its own at your house. And I think the wisest thing you said was the bit about the ‘constant financial makeover’ I’m beginning to think that’s the way it has to be.
I’m quite organised with our bank accounts however I do need to update the ‘in an emergency info’ sheet; dh doesn’t know all the passwords etc, to all our accounts.
We keep £1k in an e-saver attached to our checking account, for mini emergencies, and our larger efund is in ISAs {tax free savings accounts} ideally we never have to touch these, however we can access them quickly if we need to.
I’m searching for total banking simplicity before we move abroad