Welcome to getting your S.H.I.T together in 2023! No, the other (financially specific) S.H.I.T: Savings, Housing, Income & Taxes.
Let’s do this!
Savings: Do an audit: identify what’s coming in and what’s going out monthly, also known as creating a Spending Plan (or a Budget but that sounds so restrictive! The purpose here is YOU are telling YOUR money what you want it to do for you!). Break it down into NEEDS, WANTS, and GOALS. Check the percentages of each against your monthly take home pay. Ideally, you’re not exceeding 50/30/20 percentages correlating to your NEEDS/WANTS/GOALS. For those once-in-awhile NEEDS like car insurance or utilities, you can break those down into a monthly amount or save for them separately all year using Sinking Funds.
Once you have identified your monthly NEEDS, multiply that number by 3 and start saving for your Emergency Fund. Shoot for 6 month’s worth if you work in an industry where it would be hard to find work again, or if you’ve experienced longer periods without income before. Having that Emergency Fund is what is going to save you during the inevitable unexpected expenses in the future, as well as probably keep you out of credit card debt.
As for the GOALS portion, calculate what you have leftover each month after your NEEDS are taken care of and your WANTS do not increase beyond the 30 percent limit. Automate the transfer for that amount to your Savings or to a High Yield Savings Account every month. Even a small amount is ok, start with where you are; just get it going.
Going forward, your motto is ‘the Checking Account is for spending; the Savings Account is for saving’.
Housing: Check to see how much you’re spending on housing in relation to your income. Sustainable housing payments should account for no more than 30% of your gross monthly Income. Maths! Take your monthly housing payment (rent or mortgage+HOA fee) and divide it by your monthly gross income (before taxes come out), move the decimal two places to the right and this is your Housing Ratio. If your Housing Ratio is greater than 30%, and particularly if it’s close to 50%, you could be severely “housing cost burdened” without even knowing it. Overly-burdened housing costs could be triggering a cascade of other financial stresses.
Thinking of saving for a home? A good rule of thumb is that the price of your home should not exceed 4x your household’s annual income. Identify what that would be for you, then shoot to save for a down-payment. 20% is typical to avoid having to pay for things such as Mortgage Insurance, and 25% is even better in order to capture closing costs and miscellaneous fees. Again, turn to the Spending Plan in order to identify what you can set aside for this goal. From there you can calculate your timeframe and form your plan!
Income: In this category we have 2 options: Earn More or Save More (aka, Spend Less).
Inflation hit a 40-year high of over 9% in 2021 but was sitting at 6.5% by December 2022. Annual salary increases are only projected to grow 4.6% in 2023. Thus, the numbers prove our incomes are not matching inflation. If you haven’t had a Cost of Living raise in the last year, now is the time. Find out the policy on raises where you work and use the phrase “cost of living raise”. Back up this “need” (not “want”) to your boss with all of the evidence of why you’re so fabulous for your company!
On the Spend Less side of the coin, go back to that Spending Plan you created and identify where a WANT might need to be reassessed. Also, look at your NEEDS and identify any that are non-fixed and brainstorm how you might spend less in that category (for example: groceries are within our control to spend less).
Taxes: It’s that time of year again! If doing your taxes causes you to feel all-aflutter-not-in-a-good way, take a deep breath and dedicate a time to get organized. Gather your forms, identify all additional income, and do a little research on what exactly what you can and cannot write off for Tax Year 2022 (particularly for the entrepreneurs: identify all of the ‘reasonable and ordinary’ expenses you use to conduct business!). This is where it’s worth hiring a tax pro to look over your info and make sure you’re getting everything you’re entitled to.
If you’re an employee and you’ve had issues owing in the past, revisit your W-2 (that tax form you did way back at hiring) and make sure you’re having enough pulled from your paycheck. Another way to pay less at tax time is to contribute to a 401(k) plan through your employer (if you have access) or to any tax-deductible retirement or health account like a Health Savings Account.
Give yourself the gift of knowing where you stand right now in each of these categories! Create a weekly “financial me time”. Light the candles, put on your favorite soothing (or motivating!) music and sit down with your money accounts, docs, apps, etc. and check-in. Commit to at least 20mins once a week to get going. This focused time will not only create a new productive habit, but you can move through the rest of the week knowing what’s-what with your financial picture, rather than cringing over the unknowns. Now, how good would that feel?
Unlocking Abundance 