January Money Challenge: Establish Your Financial Foundation

Image: Mirko Blicke on Unsplash

In 2019, we’re bringing back monthly financial challenges on Two Cents (you can see 2017's version here). Each is meant to help us focus on a different aspect of our money, and, ideally, develop small changes into measurable differences in our financial lives.

These monthly challenges, though, aren’t focused on gimmicks or temporary, one-time changes, but on our holistic financial health. Rather than provide twelve discrete tasks, as in years past, this time, each month will build on the preceding months, offering us a better understanding of our entire financial lives by the end of the year.

Before we get to the juicy bits, though, we need to get the basics out of the way. We need to make sure we have a solid foundation off of which to build. This month, let’s see where things stand.

Week 1: See Where You Stand

For the first week of this month’s challenge, we’re taking stock of our finances, and getting ready to implement changes. It might seem unnecessary, as we’ve spent a lot of time over the past few weeks planning and organizing, but ideally, devoting a few hours’ time now means you’ll sacrifice less time later on. The goal is to set ourselves up for ongoing success, and that involves a bit of an investment upfront.

So, to get started, pick a date and time you can devote at least an hour (but likely longer) to looking over your finances. If you’re married or are in a committed partnership, your significant other should attend as well. You want a time that you won’t be interrupted, and you want to pick a setting that’s comfortable but also productive, like your kitchen or home office.

Then, create a balance sheet, as outlined here. You want to get a handle on your assets and liabilities so that you know your net worth, but also so you have a real grasp on where your money is going and how you’re saving and investing.

While you’re doing that, it should be no sweat to take it an extra step and organize your financial paperwork/passwords, so that everything is easy to find when you need it. I use Microsoft OneNote to organize my life, but others swear by Evernote, Google Keep or a plan ol’ Google doc. Find the one that works best for you.

After that, write down your monthly net income. That’s how much you’re taking home after taxes, 401(k) contributions, health care payments, etc. This should be fairly easy to find, on your paychecks. If your wage fluctuates week to week, approximate as best you can.

Then, and I bet you saw it coming, start tracking your spending. You can do this with an app, like Mint or Personal Capital, or with a more involved program like You Need a Budget. Personally, I’ve been using DollarBird lately, which is more hand-on than the other apps listed here and doesn’t connect to your bank account. In a perfect world you’d always have a handle on where your money is going, but that’s just not realistic for many people. But at least try to do so until the end of the month, and encourage your partner to as well.

Then, relax. You have the basics of your finances down on paper (or in an app), and you’re done with week one.

Week 2: Decide Which Area(s) Needs Work

Once you have a bird’s eye view of your finances, you can pinpoint pain spots and prioritize your goals. If you’re stuck deciding between adding more to an emergency fund or paying off credit card debt, for example, here’s a break down of what to do first.

If your finances are in relatively good standing, then here are some money moves to make in 2019 according to financial advisors. Again, if you have a partner or spouse, discuss what your goals are and which areas of your finances need the most love. Consider asking yourself these questions to figure out what it is, exactly, that you want:

Then it’s time to read up. Are you interested in learning more about how much you need for retirement? Why you should invest? How to manage health care costs? There’s no shortage of information out there that you can bookmark and read throughout the week and following months. Here are some Lifehacker articles, depending on your goal:

Pay Off Debt

  • How to pay off student loan debt while still saving and investing
  • How to pay off debt with the stack method
  • How to create a more effective debt pay-down plan
  • Spend 15 minutes on personal finance every day
  • Common debt traps that keep you living paycheck-to-paycheck
  • The first thing you should do after you pay off a big debt
  • What to do if you default on your student loans

Invest Smarter

  • How to build an easy, beginner “set and forget” investment portfolio
  • A beginner’s guide to dividend investing
  • Why you need a Roth IRA
  • Why Roth IRAs are an even better deal for retirement savers
  • How to divest from the companies killing the environment
  • How to save for retirement in your 20s without a 401(k)
  • Time is your most important investing asset

Save/Earn More Money

  • Save money by embracing the “pain of paying”
  • How big your emergency fund should be
  • How to build an emergency budget
  • How to automate your finances and save money
  • The best advice for saving as much as you can
  • How much money you need to have saved by the time you’re 35
  • Aim to get to $10,000
  • Ask for a raise with this formula

Buy a House

  • How much to put down on your first house (can you get it for two to three percent down?)
  • How much house can you really afford?
  • What are mortgage points and why are they so important?
  • When to hire a mortgage broker
  • Every expense to expect with a first-time home purchase

General Guidelines to Follow at Every Age

  • What to know about money before you’re 20
  • What to know about money in your 20s and early 30s
  • What to know about money in your late 30s and 40s
  • What to know about money in your 50s and 60s
  • What to know about money in retirement

Week 3: Implement a Change

Now that you’ve done your research (and you’re still tracking your spending), it’s time to make a change. Depending on how you’re feeling and your financial situation, this could be small or large. But it should be a serious effort to make progress on one of your financial objectives.

Some ideas, based on different goals:

  • Curb impulse spending: Institute a “72-hour” rule
  • Curb impulse spending: Participate in a no-spend month
  • Increase emergency savings: Automate weekly $20 transfer to savings
  • Invest: Read up on the basics of investing and research fund options
  • Invest: Learn how to diversify 
  • Invest: Find your investment fees and switch to lower-cost funds if needed
  • Pay down debt: Write out a debt repayment plan and figure out how much you are paying in interest alone over the loan’s lifetime
  • Pay down debt: Make one extra payment, no matter how small, toward your debt this month
  • Pay down debt: Automate payments of more than the minimum
  • Save for retirement: Set up a weekly transfer to your IRA/Roth
  • Save for retirement: Increase your 401(k) contribution

Take time to reflect on how you feel about accomplishing one concrete financial task this month.

Week 4: Keep It Up

Now that you know how easy it is to take steps toward bettering your financial future, keep it up in week four. Nothing drastic needs to happen this week; keep tracking your spending, keeping tabs on where your money is going. Consider tackling one more small financial to-do before we shift our focus.

Throughout the rest of the year you’ll reflect on where you’ve come since January and make the necessary adjustments. But, on to February, where we’ll tackle one of the biggest personal finance topics: Investing, and why the hell we should still be doing it in these uncertain times.

Next Month: Getting a handle on investing.

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