How To Get Financially Fit for Fall
Shrewd + Beatific
It’s that time of year again: school’s starting, colleagues have returned from vacation, and you’re realizing it’s time to gear up for fall. Even though it's still 90 degrees in New York, now is the time to get back into the swing of things and take a fresh look at your finances!
Don’t get me wrong, summer is amazing. It’s Montauk long weekends, 16 Handles froyo, summer Fridays, rooftop happy hours, tacos at Rockaway, and iced teas on the reg from the joint around the block. I get a little nostalgic thinking about it because it really is as great as it sounds.
That being said, I am a big believer in balance. After all the fun I had this summer, I decided to take a few hours this past weekend to assess where I am financially. Using my assessment, I am able to actually know whether I am on track with my goals and, subsequently, determine if and how I need to adjust my finances to achieve my “fitness” objectives.
Admittedly, part of this is due to the fact that my compensation adjustment goes into effect in September. However, I also love this time of year and want to leverage the natural rhythm of this back-to-school season to make sure my finances are in good shape.
The following is the step-by-step process I used:
Step 1: Inventory accounts
First things first, you need to know how much you have. Write down a list of every account you can think of and how much it currently has in it. I’m talking 401ks, IRAs, Brokerage, Savings, and Checking accounts. If you have a lot of money under your mattress, I’d count that up as well and then probably make a note to figure out which bank to put that into!
Step 2: Aggregate fixed costs
Next up, we need to get a handle on everything you’ve agreed to do on an ongoing basis (i.e. rent, utilities, cell phone, Spotify, Netflix, gym, monthly subway pass, wifi, etc). These are called “fixed costs” because you either pay the same amount each month or you’ve agreed to incur a charge for a service each month but it could vary depending on usage (I’m looking at you, utilities).
Similarly, you want to note how much you own in terms of loans, whether it is student loans, credit-card debt, or outstanding IOUs with friends and family. Make sure to capture the monthly payments, overall balance owed, agreed-upon rates, and estimated end date.
Taxes and tithing are also in this camp. For me, my firm takes out my taxes so it’s not up to me to take it out necessarily. Likewise, I treat tithing like a Kingdom "tax" of sorts and it's non-negotiable. The money I have decided to tithe on a monthly basis (based on a percentage of income) goes directly into a “tithe” account in my online bank account. I choose when and how to distribute it, but that money is a fixed payment back into the Kingdom that bypasses my discretionary spending.
At a minimum, you need to have enough money to pay for these things on a monthly basis.
Step 3: Track income
Now that we know what you have and what you owe, we need to account for how much you have coming in. For me, it comes from one place biweekly because I am a salaried employee, but for a lot of my friends it varies widely. That is part of the reason I made this the third step after fixed costs, I didn’t want you to get bogged down worrying about how much is in this category just yet.
n.b. Depending on when and how much you get paid, it might make sense to look at your finances using an annual lens instead of the more traditional monthly breakdown. If you work a salaried job you can do it on a monthly basis because you know how much you will be getting each month. If your work is cyclical or variable – you work as an artist, real estate agent, missionary, etc. – it might make more sense to look at your finances from an annual perspective since it could ebb and flow a lot on a monthly basis depending on whether you sold the piece, got the part, received the donation, or rented that apartment but overall you should have a sense of your year-over-year change.
Step 4: Identify your goals
Once I know how much is coming in, I like to take some time and brainstorm. I write out goals, imagine what I want my life to look like, and then create hypothetical financial scenarios based on using my current income.
As an example: I want to have $5,000 amount in my retirement account by the time I’m 35 (five and half years from now). I currently have $500 in the account and save $10 a month. I perform the following calculation:
$10 per month * 66 months (12 months * 5.5 years) = $660
Add that $660 to the $500 I already have = $1,160
Which is $3,840 off my goal. ($5,000-$1,160)
An easy way to figure out how much you need to contribute each month is to start with your goal and work backwards:
Subtract what you have ($500) from your goal ($5,000)
From there ($4,500) divide it by the anticipated time period (66 months)
Which means you need to save $68 each month to reach your goal ($4,500/66) in the desired time period.
I run calculations for anything I want to have money for at some point in the future: retirement, emergency fund, short-term savings (to be spent in the next 1-12 months – think travel, clothes, etc), and long-term (to be spent in the next 1-8 years – think car, house, wedding, etc).
As for the qualitative dreams, I just jot them down on in my life journal, which is a notebook I that carry around and contains anything career, travel, personal finance, self-improvement, health, or gratitude related from the past three years. While it’s super old school to handwrite it, it has been very helpful for me to look back at a list of travel plans, financial goals, tithing recipients, and seasonal “wants” from before I took my job at the Firm or moved to New York and see how far I’ve come, what I’ve accomplished, and what I thought I wanted but now know I didn’t really need. I use it as a way to reinforce and cultivate thankfulness and contentment.
Step 5: Draft your Budget - Saving
Now that you have a sense of all of the goals to which you’re aspiring, you can go back to the original net income (i.e., after taxes, take-home pay) and multiply that by 20% to figure out how much you are aiming to save in total. If you’re wondering where 20% came from, it’s based on conventional wisdom (see here, here, and here).
We can get into this another time in more detail, but I think starting off with 20% as your benchmark and adjusting in light of your spending helps keep things in perspective. This works for me because I like to dream big and saving up helps make those dreams a reality!
Step 6: Draft your Budget - Spending
Next I take my net income (with the 20% still in it!) and subtract the fixed costs to get your total discretionary income. At this point, it would be helpful to know how much you’ve been spending on certain things (I use Mint to track this) so that you can divvy up your spending proportionally. However, you can create a budget without it.
For me, I have categories for travel, food, periodic costs (like dry cleaning and getting my nails done), splurges, transportation, etc. I call up my last budget breakdown and pencil it in. I try to look at it holistically, asking myself whether the current state reflects my values, aligns with my current spending, and is sustainable. Then I look at the goals I wrote down and see whether the amount I have allocated will allow me to meet them. From there, I start a new column for the same list of categories from my current state and go line by line, in terms of priority, filling out the saving and spending until I run out of my discretionary income.
My inner dialogue as I go through this process sounds something like this: “I have a trip to Europe coming up, let’s ramp up the travel category. I am spending more on periodic payments than I used to, let’s add more to that account. Okay that leaves me $100 for saving, should I put it towards my brokerage account or emergency fund? I’m not sure, I’ll just split it evenly for both. Okay that leaves only $25 a month, which will go to splurges. Although if I made breakfast at home before work that amount could probably go up to $50 a month. Let me see if I can try that for this upcoming week because I really want some new biz casual pants for fall”.
The specifics are hypothetical, but the overall sentiment is directionally correct. The purpose of this process is to figure out what feels the best to you, in light of your responsibilities and dreams.
Step 6: Implement Changes
I briefly touched on this in my inner dialogue blurb above, but for me this fitness exercise is about bouncing my hope up against my reality and seeing what works and what doesn't. I currently spend an absurd amount of money on food relative to my overall budget. I do it because I am single and do not find a whole lot of satisfaction in cooking and eating alone, but also because I really love the convenience of being able to buy healthy food whenever I want based on my craving.
That being said, I forgo spending on stuff – clothes, shoes, and bags – because it’s an either/or situation. If I want to spend more on clothes, then I’d need to really seriously consider cutting down on my food splurges. Historically, I’ve prioritized convenience over accumulating stuff. However, in last weekend’s session I finally considered changing my ways in the food department to free up funds to expand my fall wardrobe and put funds towards my “upkeep” (aka haircut, mani/pedi, makeup, etc.).
This is where you are customizing your choices based on your values.
Step 7: Make tweaks
Lastly, I try to adhere to the budget as much as I can for the first couple of months while also making mental notes of anything that seems challenging to execute. If it’s a one-time difference then it’s not a big deal, but if I’m consistently going over what I set aside then I will go back and shift things around until it’s more in alignment with what’s actually happening.
A budget that isn’t realistic is not helpful.
So that is how I get financially fit for fall, folks! What do you do? Is it similar to my approach? If not, how is it different? My way is certainly one of many options on the personal finance spectrum and while it works for me it might not work for you at all. Totally okay with that! There is no right way when it comes to money or personal finance.
The best way is the one that works for you and you stick with!
