This post is 3,011 words, a 14-min read.
You'll need to read this one in a browser. Sorry!
You can also listen to the audio version here.
I am releasing this post outside of my normal upload schedule (not because I forgot to post it 🤫) because I want us to use the weekend to start looking at some of these things. You will not get through everything but at least there are items you can knock out quickly during your time off.
This post is sponsored by NO ONE.
If you would like to sponsor Rambling Mind Newsletter, please email ramblingmindshow@gmail.com.
Now into the post for the week.
We all had "New Year New Me" Financials Goals. With 7 months of the year 2023 in the books, now is a perfect time to review where you are on the road toward those goals. Maybe you had unexpected emergency expenses or maybe you just wanted to live your best life. Regardless of how the year may have started out; it is a great idea to take a review of where you are and where you want to be before 2023 comes to a close.
December will be here before you know it but we still have plenty of time to finish out the year strong. The review is broken down into 2 parts
Big Picture Overview
Detailed action items to implement
If you are married or pseudo-married, have these discussions with your significant other. Have a date night and review where you guys are headed together. If you have kids, maybe bring them into the discussion in some way so they can learn and grow accustomed to money discussions.
I hope you find this to be helpful. If you already have a list of your own, please share it in the comments, reply to this email, or DM me on Instagram @bykelechiwuaba or Twitter @kelechiwuaba.
With all that being said. LET'S BEGIN!
Big Picture
Net Worth
I will be honest with y'all. I despise checking my Net Worth. After paying off my debt, my net worth has gone from something that I excitedly checked as it went from -$20,000 to $0. To something, I actively avoid checking. My net worth has turned into a reminder that I am nowhere near my ultimate destination of Financial Independence. So if you are like me and the thought of checking your net worth brings nothing but anger and frustration, I COMPLETELY UNDERSTAND.
However, I understand the need for me to do this. It gives me a much better picture of how things are progressing. As I always say, "If you do not know where you are, you are already lost."
Checking and Updating my net worth, helps me get an accurate picture of where I currently am. Which gives me a good idea of what direction I want to take things. I do it once a year (the beginning of the year and birthdays are great times to do this). Checking in the middle of the year can be great motivation to finish the year on a high note. Here's how you do the check:
Net Worth = Assets - Debts
There are two main things you need to get the number:
Assets - things you own that can increase in value
Cash: Savings Accounts, CDs
Investments: 401(k), IRA, Brokerage, Crypto,
House Value: I use the price I paid for the house but you could use Zillow
Other items you could include but I choose not to cause typically these things only hold value to use and not to anyone else
Art, Cars (Kelly Blue Book), Jewelry, etc.
Debts - things you owe
Mortgage
Credit Cards
Student Loans
Auto Loans
Personal Loans
NOTE: Some items will appear as both an asset and a debt. For example, a house has both a mortgage and an estimated value. If the house is worth $300,000 but you still have a mortgage of $120,000. You would put the value on the assets side and the mortgage on the debt side. You can do the same thing for a car.
My Style: When calculating my net worth, I do not include jewelry, electronics, cars, art, collectibles, books, etc. These items tend to mean more to me than to a buyer, which means I overvalue their worth. For my house, I use the amount I paid for the house not the current value of the property I see on Zillow. For cars, I give a $0 value because my goal is to run it into the ground and not have to buy another one for A LONG TIME. I like being conservative. You may be different.
Credit Score
In these United States, we operate on a credit-based system. Fancy words for DEBT. Learning how to play in this system is very important for your financial success. In truth, I find the system DUMB.
But I still wanna win the money game so I play the game for my benefit. The biggest part of this game is ensuring you have a good credit score which is anything above 700 using the FICO system. To achieve a good score do these two things:
Pay off your debts regularly and on time
Keep a low utilization score (10-20% of your revolving credit)
However, things can happen that are out of your control. A few examples:
Moving apartments and forgetting to pay a $15 water bill.
Having a terrible roommate who agreed to pay a bill you venmo'd but the bill never gets paid.
Identity theft
Bad Paperwork
To ensure none of these things have happened to you or to catch it early so it does not affect you at a time you really need your credit to be great i.e. when you are finally closing on a house or getting a loan for a car. You want to do a regular check-up on where your credit score stands. You do this by:
Going to annualcreditreport.com.
Review all your credit reports from the 3 credit bureaus: Equifax, Experian, and TransUnion.
Do a spot check to ensure there are no surprising new lines of credit or random unpaid bills that might be bringing your score down.
Most Bank Apps now show your updated credit score. This is an easy way to keep track of your score on a regular basis. This is useful when you are getting close to making a big purchase like a house or a car. If you have a score over 750, Congratulations You Won. You will get the best rates for any loan you apply for. A perfect credit score is a waste of time and opportunity cost is too high.
Having good credit is not necessarily anything to be celebrated because all it means is you have the ability to take on more loans (to build wealth, you want assets). But taking on more loans means more of an ability to pave our road to financial regret. As Morgan Housel says, "The road to financial regret is paved with debt." However, a bad credit score is not to your benefit either. Win the game early and immediately exit the field.
Cybersecurity Tip: Place a freeze on your credit to ensure no lines of credit are created without your approval.
Estate Documents
Maybe you've seen the news of the fight between the children of Aretha Franklin over who gets control of her multimillion-dollar estate. This is a very common occurrence for many families. This entire fight could have ended if there had been an estate planning document for the day she passed.
And before you get all OMG😱 we can't talk about death, get over it. We will all die it is inevitable. The earlier you accept it, the better you will be at preparing for it. Plus it is the best gift you can give your grieving family. A time to fully grieve and not deal with the US' abusive legal system.
What is an Estate Planning Document?
It is a legal document that carries out your wishes for when you pass. It includes 6 documents:
Will/trust - the main component of the EPD. Wills ensure property is distributed as you see fit and the trust helps limit tax or legal challenges
Durable power of attorney - decides who gets to act on your behalf when you cannot do so yourself. Otherwise, the court will make decisions on your behalf, remember not all judges are good or just.
Beneficiary designations - some items can be given outside the will such as a 401(k), IRA, or insurance benefit. You have to name a beneficiary for these items otherwise the courts decide
Letter of intent - defines what you want to be done with a particular asset, can include funeral details
Healthcare power of attorney - who gets to make decisions about your life.
Guardianship designations - who gets to take care of your kids if something happens to you and your spouse.
I don't know much about Estate Planning because I have never done one. It is something I have continued putting off because I don't have a dependent. However, If you're like me the minimum we need to do is to update our beneficiaries on all our various accounts and get a will in place. This is especially important to transfer over account password information. If you have older parents, might wanna have "The Talk" with them.
For those with a family with people depending on your income, make sure you have life insurance. If you do, make sure your life insurance is still enough. You might need a bigger policy if your family has grown or your income has grown. But remember we do term life insurance.
Down in the Details
Spending
If you are like me, your bank account has taken a beating to start off the year. There has been a major rush on our accounts. Everything from travel to weddings to birthdays. Some may have been accounted for, others not so much. Maybe you had an emergency situation (i.e. getting in a car accident 😞😢. I still love you Silver Accord).
The goal of reviewing past spending is not to beat ourselves up. The past is the past. We review our spending so we have a better idea of what we need to do next. It is to get an idea of where holes might be in our accounts. Information is power but only when used.
A few specific items to review:
Bills - negotiate
Subscriptions - what are you actually using vs not and needs to be canceled
Insurance - time to shop around and compare.
Food specifically eating out and delivery
Shopping - is your guilty pleasure costing you
Using the information we know, we can begin planning out the rest of this year. Maybe you surprise yourself and find areas where you are spending less so you can use the money elsewhere. Or where you can compare prices and save yourself some money.
But the most important question to ask for each expense is "Does this bring me joy?" Money is a tool to be used for our happiness. If your spending is currently not doing that for you, IT'S TIME TO CHANGE SOMETHING.
Guideline of what you want your spending to look like:
50% to Needs: Bills, Transportation, Groceries
25-25% to Wants: Eating Out, Travel, Shopping
25-30% to Saving/Investing/Debt Payment
You might not fit perfectly into this but it is a great framework to get started.
Pro Tip: Question your loyalty to everything. It might not be serving you. Loyal customers are the easiest to charge more.
Insurance
I'll be honest with you guys, I hate talking about insurance. It is boring and annoying and all the words are designed to confuse us. However, it is important that we regularly review the needs of our family. Four questions we need to ask every six months:
Do I have all the coverage I need?
What has changed for my family?
Have I met my deductible for the year?
Am I paying too much or too little?
Two Words to Understand:
Premium: Your monthly Bill Payment
Deductible: Amount you have to pay before insurance kicks in.
Typically the higher the deductible, the lower your monthly payment.
Types to Review:
Life: if you have people depending on your income. You need to have a Term Life Policy. This means for all of us single folks, we do not need to get life insurance just yet. Invest your dollars.
Health: have you met your deductible?
If you have take advantage and go get every medical test under the sun done.
In November, you get to make changes to your elections
Home: has your home value increased?
Have you made upgrades to the house?
Do you have documentation of all the things you own in the house?
Auto: is this the best deal for your car?
If you have an emergency fund could you take on a higher deductible
Do you need to remove or add drivers to the account?
What added benefit does your insurance provide?
This is not an exhaustive list but it's a good starting point. As you review you'll notice some things stand out more than others. Those are the exposed nail heads that need to be knocked in. I recommend checking out these two podcasts where they break down what to look for with insurance:
Savings
This is my favorite part of the review process. I'm a goal-oriented individual. I love setting goals for myself and working towards those goals. Sometimes this is a great thing and other times it's a horrible thing. To learn more about that topic, read this post called "Stop Moving the Goal Post".
Unfortunately for us, life isn't very linear. Things do not always progress as fluidly as we would love. There are always bumps along the path that knock us off our chosen path. The middle of the year is a great time to review those goals. There are two main questions to ask:
Am I making progress toward this goal?
Is this goal still attainable or does it need to be adjusted?
The most important thing when it comes to any of your goals is what is the trend line showing. Are you moving towards the goal or away from the goal? Every goal will be different.
A long-term investing goal is something that will take decades to realize. Which gives a ton of room for adjustments
A short-term goal for example saving for a trip happening in the next 6-12 months has less room to adjust.
The key is learning what to prioritize and what to keep on the back burner. However, do not sacrifice the long term for short-term satisfaction. Saving is good but Investing is VITAL.
Investing
The freedom bucket. The pot of money that will guarantee that I can control my life. There are a few questions I ask when I review this:
Am I taking advantage of the tax-advantaged accounts and getting free money?
Roth IRA - am I on the road to maxing out this account?
401(K) - employer match
HSA
Are my investments aligned with my future goals?
Am I chasing hot stocks or playing the long game?
What fees am I paying for my investment?
No more than 0.2% on index funds
Paying advisors fee only and for specific advice.
Does my risk tolerance still match my portfolio?
Other accounts to review:
Personal Brokerage: are there investments that need to be sold and used for tax loss harvesting?
529 - College Fund
UTMA - Children Brokerage
Debt
Much like reviewing your savings goals for the year. When reviewing your debts, you are looking for trends. Are you making progress or do you need to make changes? What goals can still be accomplished and what goals need to be adjusted?
My only ask is for you to be truly honest with yourself. Debt is not something you want to play around with. See Morgan Housel's quote above. You want to free yourself as quickly as possible from it. Remember debt is a claim on your future. You want a future that you decide not one that is decided for you.
How to think about your debts when viewing them:
If you have large debts with low interest rates i.e. Student Loans.
Your main goal here is to see how you are progressing.
It is making sure that the number is trending in the right direction.
The right direction is DOWN unless circumstances are rough then it is sideways.
If you have smaller debts with large interest rates i.e. Credit Cards.
Get rid of those things quickly. These tend to snowball and quickly become large debts.
There are two options when managing debt:
Either pay more than your minimum to cover the interest costs and pay some principal as well
Or pay enough to cover the interest so the debt does not grow.
Again the key is prioritization. What needs to be your focus and what needs to be on the back burner? Two techniques you could use:
Debt Snowball: you start with the smallest debt amount and walk your way up to the largest
Debt Avalanche: start with the highest interest rate debt and work down to the lowest interest rate debt
My Style: I prefer the snowball because I like having small victories. Regardless of your method, the goal is to ensure you are making progress.
This is not an all-inclusive list. There are many other things that you could check for your finances. But I believe this a great starting point for anyone who wants to get into the habit of doing these midyear checklists.
Again if you already have a list please share it in the comments, reply to this email, or DM me on Instagram @bykelechiwuaba or Twitter @kelechiwuaba.
Generosity>greed
God Bless You
✌🏾