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Your Money: Personal Finance Resolutions For 2019
January 2, 2019 1:40 p.m.
Related Story: Your Money: Personal Finance Resolutions For 2019
Is the New Year and many of us make resolutions to live healthier happier lives and that includes our financial health. No matter what tax bracket we fall when there are ways we can do better. Joining me to talk about that is Paul Limbe a financial adviser with the consulting group. He's also an adviser with the San Diego financial literacy center. Paul thanks for being here. Thank you Jake. So one of the first steps that you advise is setting a budget. Talk to us about that.
So when it comes to evaluating your budget you really want to categorize your expenses as far as needs and wants. So some of the needs that are of importance are going to be of course paying your rent on time and all the various other obligations that you have. And then looking at Watts and seeing what exactly in those wants categories is something that I could forego a little bit for my own future financial security and then do your best to be able to cut those things that are unnecessary. And then of course utilize an earmark that old expense as a new one where by you're actually taking care of your future self putting it away into a savings account or something else where it's a little bit harder to get access to it.
Now what you've done is you've recaptured those dollars that used to be going out in terms of an outlay and recategorized that you know there's this old saying that goes a penny saved is a penny earned and that's actually not true because if you take taxes into account you probably have to earn one point five pennies to pay half a penny to the government and then have a penny in your pocket. So really cutting one dollar of an expense is like earning a dollar fifty on the other side. So don't ever discount the value of being able to cut small unnecessary expenses because when you actually go back and realize how much of your own hours you would have had to use in order to earn that same wage after taxes.
The numbers are staggering.
What's the most common ones that you advise your clients to cut.
What I think of what it comes to one of the things that you can do to really begin to make big steps in your in your program is to really think about cooking for yourself instead of eating out as much when you are going to a restaurant. It's not just about paying for the food itself you're paying for the Army and other things. If you look at the most successful fit people they all meal perhaps so being able to put some of those steps in place is a way for you to control the amount of money you spend not only on food and dining but also in taking care of your own personal health as well.
So it's good for our wallet and our waistline. Absolutely. All right now you have one recommendation that at first might not seem to be related to personal finance. Tell us about how re-evaluating your commitments can have an impact on your personal finances.
Sure. So when we actually take a look at how our ability to achieve goals is based on how much time we have available the New Year is a really good time to do an inventory on all of the commitments that you had over the previous years whether your volunteering on some board or participating in a child's activity or something of that nature. If you have the time to ask yourself whether or not doing that is really an obligation that's helping other people or if it's helping you you can figure out whether or not it makes sense for you to continue doing that activity or not.
You know the first of the year is a great time to be able to re-evaluate. A lot of those commitments and say to yourself you know it's been a great time that I've spent with this organization or with this group and I really want to thank you for the time that you've had with me here. I want to take this point now to put priorities in different directions so you can basically take the beginning of the year as a nice way to be able to gracefully bow out of a lot of time obligations that you used to have and so now you'll find these newfound hours with which to achieve new goals that you set for yourself.
So for the person who's taking your advice they've re-evaluated their commitments. They're eating at home. They've really trimmed their spending budget down and now they've got extra money. What do you do with that extra money.
First thing to do is to build up an emergency fund so this will be basically cash reserve very boring cash. What's nice about this is that you'll be able to access it in the event of an emergency. So if you build yourself a goal of saying I want to have three months of my living expenses stored away in the bank then you know that that's a great test for saving. Once you achieve that you can start putting the dollars into longer term savings vehicles like say maybe 401k or IRA something of that nature in order to not only get the tax deduction which is a different topic but also to be able to save for your own financial future.
Building that in as part of your bills.
Now only 39 percent of Americans have one thousand dollars saved according to a recent survey. So those with that emergency surplus are less common but say you're in that 39 percent. What do you advise that they do.
Well you have to look at your dollars as being both short term long term and medium term savings vehicles so what's really nice about the short term vehicles is that you can have access to them the long term vehicles will give you some tax deductions and things of that nature but they're not really accessible in the event of an emergency. Then we have our medium term savings vehicles which are kind of in between. And so this will give you some tax benefits but at the same time it's accessible you don't have to be 59 and a half years old in order to access these accounts for example.
So you have to make really make a goal of filling each of these buckets with short term medium term and long term money. And then the fun part really comes in when we get to decide how to spend those dollars.
All right. I've been speaking with Paul Limbe financial planner with a wealth Consulting Group also an adviser with the San Diego Financial Literacy Center. Paul thanks so much. Thank you Jake. And next week we will be discussing how investing can help you build passive income.