Sunday, February 24, 2019

Let's talk personal finances

I mentioned in this post if you're interested in our financial planning process and some of you said yes. We just finished reviewing our financial plan for 2019 so I thought I'd share a few things while they're still fresh in my mind. A couple of disclaimers: I am neither a financial planner nor I have a background in finance. We've learned quite a bit from our personal financial planner in terms of what works best for us. # 2: Please keep in mind that what works for us may not work for you. Every individual/family has a different financial situation. At the end of the day, do what makes sense for you and your family. Note: These photos have nothing to do with this post. Just a few random ones that bring back good times and good memories =)
{Taken during our trip to Paris}
Step 1: The first step is to pay off all your credit card debts: Those debts are evil! The goal is to have only mortgage payment and maybe a car payment. Everything else should be paid in full at the end of each month.

Step 2: Create a budget plan: Once your debts are paid off, it's time to create a budget plan. In most cases, you can figure out how much you'll bring home per month. However, not everyone has a clear idea of their monthly expenses. To be completely honest with you, we were very surprised to find out that we spent so much money in a month (water bill, gas bill, electric bill, cable bill, phone bill, sewer bill, auto insurance, home insurance, child care expenses, the list goes on...). Having a budget plan makes you aware of what's going on with your money. You don't need any fancy tools. An Excel spreadsheet would do. Create a section for your take-home income and another section for your expenses. A simple calculation will tell you exactly how much money you have left per month. Don't be surprised if the amount is way less than what you expected

{My beloved Rolex watch}
Step 3: Think about what to do with leftover money in your budget: I've mentioned at one point that my husband and I have joint finances. Should couples have joint or separate bank accounts? That's a whole different topic to talk about. We decided to join our finances since day 1 and that works the best for us. We have a joint saving account, a joint checking account, a joint credit card, 2 other joint checking accounts specifically for major purchases and vacations. We used to have 2 extra accounts for the girls but we took the money out to invest into something better for them so we closed both accounts last year. With leftover amount in our budget, we put a portion of it into our saving account, an x amount into the major purchases account (it can be anything like a chandelier for the house, a designer bag for me or a watch for my husband). This account is basically for any planned big ticket items. We also put a dedicated amount into the vacation fund. For a family of 4, the average vacation cost is $5000. As the matter of fact, we just spent $3000 on 4 airline tickets alone to Aruba this summer. Set aside a few hundred dollars each pay check is way easier than drop $5000 at once. Some friends disagreed with me when I shared my plan. It's all the same amount of $$ to them. We've been doing this for a few years now and it works wonderfully for us (especially we're taking 2 trips this year)
{This photo was taken on my 40th birthday}
Tips to create a solid financial plan:
- Get a true and honest understanding of your financial situation. Budgeting together and being on the same page with your money will set you up for success.
- Have a clear and specific financial goal in mind. The more concrete you can define your goal, the easier you can figure out how to achieve it. Of courses, your goals can be modified throughout the years.
- Set up automatic transfers from your main checking account to your dedicated accounts. That way, you won't be tempted to spend this money on something else.
- Be realistic about your financial plan. Don't make huge, unrealistic goals right off the bat. Small steps are all you need.

This post is getting long and I am getting sleepy =) If you're interested, I can do part 2 to talk about college funds for my kids, different ways for us to build our emergency fund, 401K retirement plans...Hope you find this post helpful

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