5 Ways to Take Back Your Finances

Quite often I meet a new client who finds themselves unexpectedly in charge of the family finances and feeling overwhelmed, or worse, scared. The fact is that if you don’t know what’s going on with your finances, you may be in for a big shock. Could any of these situations be you?

Liz just found out that her family is broke because of some bad investment decisions her husband made with their savings. Lou recently got divorced and although the family was ‘living the life’ before the divorce, he sees now that credit card bills are out of control and they have no savings for college or retirement. Or Lori, who just lost her husband – he managed all the family finances, and now she finds herself drowning in paperwork (and a little scared).

It’s bad enough when financial crisis happens, but when one partner is fully unaware – it’s even worse. Many households divvy up family chores to make life easier on everyone. But, finances should always be a family event. If you find yourself suddenly in charge of your finances, or, you feel it’s time to take control and pilot your future, here are 5 financial steps to start you on your road to financial freedom.

1. Sit down and set your goals

Honestly, how often do we do this? As husband and wife, probably with a few children, we fly through life and generally let it take us for a ride. We rarely sit back and think about where we see ourselves in five or ten years and direct our actions towards those goals. The breadwinner in the family can sometimes feel an unnecessary pressure to over-provide for the family. This can cause him or her to take unnecessary risks with investments or overextend the family finances. Sitting down once a year to set the record straight on spending and saving expectations can put these fears to rest and reset priorities in a way that relieves the pressure. Do this now – determine your short- and long-term goals so that you know what you’re saving for and if you’re successful. Your new  goals will drive all of your financial decisions in the right direction.

2. Get your credit report

Not everyone realizes that your credit report is just that – yours and yours alone. There is no such thing as a joint credit report. You can get a copy of your report for free, from each of the three agencies, once per year through annualcreditreport.com. Check the entire report for anything that looks unfamiliar – these are red flags that something is going on with your credit without your knowledge. Items of concern are: cards you don’t recognize, late payments or even payments on credit cards for much less than the full balance.

3. Read your tax return

Sound difficult? It doesn’t have to be. While understanding your whole tax return might seem a bit complex, start out by becoming familiar with some of the most important numbers to see if they pass the “reality test” with you. Check the Wages (line 7) and the Ordinary dividends (line 9), and Capital gains or (losses) (line 13) – do these pass the smell test? How have they changed over the years? If something seems odd, you have every right to follow-up on it.

4. Become familiar with your investments

Review all of your current investments, including retirement assets, savings, and, specialized savings like 529 Plans or UGMAs (Uniform Gift to Minors Act accounts). Realize as you go through this step, that most families with average, or even above average assets, do not need to go far to find the right investments. For most of us, the basic bank accounts plus some mutual funds or ETFs will meet our investment needs well into the future. The larger mutual fund companies are well-known and are generally very transparent on fees, and they offer everything you need at a reasonable price. The lesson here is: if it seems too good to be true, it probably is. Don’t go out on a limb unless you truly know how to evaluate an investment.

5. Save now for your future

Sometimes the biggest loser in a financial crisis is your retirement. Avoid this by funding your IRA or retirement plan at work each year. Even if you do not work outside of the house, you can generally contribute to an IRA as a spouse  – and you should be saving for your future. Watch your retirement savings grow and follow this recent rule of thumb suggested by Fidelity Investments: Retirement savings should equal 1 times your salary at age 35, 2 times by age 40, 4 times by age 50, 5 times at 55, and, 8 times by 67.

The same is true for your college funding. Each year, contribute to your children’s 529 plans. Help your children reach their goals by at least paying for a portion of their education. Student loans can strangle a young budget and saving a little now goes a long way later. Here is a great chart from NerdWallet to show just how far your dollars can go if you start now.

Each of the steps listed above are ideas to get you reacquainted with your money and finances in general. Making sure  your money is working hard for you is central to helping your family meet your future goals – whether  it’s retiring early of buying a boat or starting a new business. When you plan your future, you’ll feel more in control of your financial freedom.


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