Uber Frugal Week Day 6: Figure Out Your Full Financial Picture and Set Money Goals
Today is all about getting your financial affairs in order. Doing proactive stuff with your money necessitates knowing everything about it: how much you have, how much you earn and spend, what your debts are, and where your assets are held.
All this and more in Day 6 of the Uber Frugal Week series! I know you’re trembling with excitement. Who doesn’t love a good missive on organizing exciting things like NUMBERS!!!!! Spoiler alert: there will be spreadsheets. Oh will there be spreadsheets. Also check lists!!!!!
We discussed tracking expenses on Day 1 because that’s the thing you can immediately impact; however, there are other elements of your finances that are equally important. So today, we’ll talk about all the numbers in your life that are not your expenses (because you’re already tracking those, right?).
Uber Frugal Week: Day 6
Welcome to Day 6 of my pandemic-inspired, what-do-I-do-with-my-money Uber Frugal Week series. For more about the series, including an overview of what I’ll cover each day, check this out. I recommend you read the series in order; start with Day 1 here. Read disclaimers about me and the series here.
So far in the series I’ve covered:
- Day 1: Categorizing and compiling your expenses
- Day 2: The relief and forbearance programs available in response to the coronavirus
- Day 3: How to save money in almost every category of your budget
- Day 4: Making your money work for you: emergency funds, high-interest savings accounts, and using credit cards to your advantage
- Day 5: How to get on the same financial page as your partner ASAP
- And a special Reader Suggestions on how to make extra money working from home during the pandemic
While the Uber Frugal Month is an email program, the Uber Frugal Week appears right here on the blog in a series of posts. I’ll publish Uber Frugal Week posts as quickly as I can but, in all honesty, I haven’t written all of them yet because pandemic means both of my kids are home all the time and my husband and I are both working from home. I’m writing as fast as I can, I promise!
Day 6: It’s organization time!
Fellow spreadsheet fanatics, our time is now. Open up excel and don’t look back! If you are in Camp Anti-Spreadsheet, don’t worry, you’re welcome to use whatever format you like: graph paper, Word document, robot-themed stationary. We’re going to get our affairs in order and we’re going to do it together.
On Day 1 we discussed how to track our spending; today, we’ll address how to track all other money-related things. The goal is to come away with a clear picture of your finances. This is important because it’ll help you discern where you stand and what areas need your attention.
Why are we doing this now? Because the economy is not looking so great. Due to the pandemic, we’re in an uncertain state and it’s hard to predict when the economy will rebound and return to a state of normalcy. When things get weird, it’s a great idea to have all of your affairs in order. It’s also a lot easier to do this stuff before you’re in a state of true crisis.
If things get worse with either the coronavirus or the economy, you’ll be glad you put in the time to have everything in order. And if things get better, you’ll also be glad you put in the time to organize everything. See? There’s no way this isn’t a win!
For each of the below, I’ve included a sample spreadsheet format that you’re welcome to copy and paste. If you’d like to see examples of these spreadsheets with real live people’s finances, check out the Reader Case Studies.
Step 1: Track Your Spending
If you’re not tracking your spending, loop back to Day 1 of this series to get yourself set up with an expense tracking system. I use and recommend the free service from Personal Capital (here’s more on how Personal Capital works and why I like it).
Step 2: Know Your Income
Don’t laugh, you guys, this is actually more complicated than a lot of folks realize because we’re not talking about your gross income–we’re talking about your net income. And we’re not just talking about your income from your primary job, we’re talking about all your income and all your partner’s income. The goal is to determine exactly how much money you (and your partner, if applicable) bring home every month.
Time for a Mrs. Frugalwoods Q&A:
Q: What is net income and what is gross income?
A: I’m so glad you asked. “Net income” refers to the money you actually bring home every month. Net income is what you earn MINUS all deductions, such as: taxes, healthcare, employee parking, retirement contributions, etc. “Gross income” is what you earn before all of those deductions. So if your salary is $60,000 per year, that’s your gross income. Your net income is less than that because of taxes and other deductions that come out of every paycheck.
The easiest way to figure out your net income is to look at your paystub. Then, enter your net income, along with your partner’s, into a spreadsheet. Be sure to include all income sources from any side hustles.
Here’s a sample spreadsheet format:
Step 3: Know Your Debts (and which to pay off first)
Make a list of everything you owe money on, the interest rate, and the terms of the debt. Examples of debts: student loans, credit cards, car loans, and mortgages. A debt is anything you don’t own outright. Organize your debts by interest rate with the highest interest rate first.
Pay Off Debts According To Interest Rate
In general, the most mathematically efficient way to pay off debt is to pay it according to interest rate. The higher the interest rate, the faster you want to pay it off. There are lots of different debt-payoff methods, but this is the one that makes the most sense from a math perspective. Interest rates are what make debt bad. Interest rates are what add more money onto your debts. The higher the interest rate? The worse the debt.
I’m a HUGE FAN of chipping away at debt according to interest rate and of staying focused on smaller, more manageable goals in debt repayment.
Here’s a sample spreadsheet format:
Why List All My Debts?
The goal of listing all your debts isn’t to depress or overwhelm you, it’s to bring you face to face with what you owe and how you can start paying it down. Ignoring debt does not make it disappear. Take a deep breath, write down your debts, sort them by interest rate, and make it a priority to pay them down when you’re able.
Before starting an aggressive debt repayment plan, please refer to Day 2 of this series, which has information on relief programs for people who’ve lost their jobs due to the coronavirus and can’t make payments. Even if you’re still employed, you might qualify for forbearance programs being offered right now, such as for federal student loans.
If you received a stimulus check, are still employed, and already have an emergency fund saved up (see Day 4 for details), you might consider putting that money towards paying off high-interest debt.
Step 4: List Your Assets
An asset is the opposite of a debt: it’s money that’s yours! All yours! Assets include stuff like your checking account, emergency fund, retirement investments, the equity you have in your home, and more. Assets do not include stuff like cars, your grandmother’s china, and an antique clock collection. If you were to sell those things, the cash would become an asset. But until you find a buyer for those things, they don’t have a monetary value you can utilize. In other words, you cannot buy groceries with them.
Here’s a sample spreadsheet format:
Step 5: Review Your Overall Net Worth and Pat Self On Back
There are several goals in compiling all of this information. Now that you’ve done the work, you:
- Have a clear picture of your overall financial position, including your: income, expenses, debts, and assets.
- Have all of your information in one place and can make informed decisions about your money.
- Can run through the below checklist:
- Do my monthly expenses exceed my monthly net income? If so, check out Day 3 for tips on reducing your spending.
- Do I have an adequate emergency fund? Refer to Day 4 for details.
- Are my savings/checking accounts earning a high interest rate?
- Am I on track with saving for retirement?
- Do I have a plan for paying off my high-interest debt?
- Have an easy way to review your holistic financial picture with your partner/spouse (if applicable). If you’re encountering challenges or barriers to discussing money with your partner, check out Day 5.
- Pursuant to #4, if you have a partner/spouse, make sure you both know how to access all of your accounts, which banks/brokerages they’re at, and where all account passwords and related documents are held.
With all of this information in one place, you can feel confident about creating a plan for your money. You now have a deeper understanding of what you need to work on and where you’re excelling. Most importantly, you’re not in denial about your financial health.
If you want to automatically track all the data we compiled today, consider signing-up for a service that’ll do this for you every month.
I use Personal Capital because it’s free and it links all of my accounts together automatically, giving me a comprehensive update on my overall net worth every month. Here’s more about why I use Personal Capital.
Day 6 Summary:
The goal of today is to get your financial affairs in order.
- Track your spending every single month (we covered that in Day 1)
- List your net income from all sources
- Create a list of all of your debts and sort them by interest rate with the highest interest rate first
- Write down all of your assets
- Review all of this with yourself or your partner (if applicable) and set actionable goals about your finances
What questions do you have about Day 6?
Day 7 is coming your way next week! If you’d like to get an email letting you know when it’s published, sign-up for my email list in the box below.
Never Miss A Story
Sign up to get new Frugalwoods stories in your email inbox.