Common Cents

Common Cents By Elliot Pepper, CPA, CFP®, MST Turning Money Plans into Money Action in 2023!

Arecent study published in The Ascent revealed interesting trends with regard to financial related new year’s resolutions. According to the report, 66% of Americans plan on making a financial resolution for themselves in 2023. Having a plan is important, but a plan without action doesn’t deliver results. Let’s explore some actionable strategies for the new year that can make a real difference!

Start by setting specific, achievable, and measurable financial goals. Personal financial advice is personal! This article won’t be able to give you the exact answer for your situation, but it should help you with applying the concepts to your financial life.

Manage Cash Flow: Cash Flow is the foundation of your financial plan so tracking what comes in and what goes out is critical. You can automate this task so that it doesn’t become overly burdensome. There are plenty of free (or cheap) online budgeting apps, as well as spreadsheet templates to help you reach this goal. At Northbrook Financial, we task all clients to complete a monthly categorization of cash flow within our online and mobile app. Tracking cash flow monthly is a critical financial guardrail - and like any habit, once you get the hang of it, it becomes second nature and part of being a responsible adult! • Specific: Manage personal cash flow on a monthly basis • Achievable: Utilize an online app or spreadsheet and categorize every item that comes in to your accounts (inflows) and every item that goes out (outflows). Set a notification to do this within the first week of every month for the prior month’s activity. • Measurable: Complete for one year so you can see how your cash flow fluctuates over time. If you are cash flow positive, congratulations! Now set up an automatic transfer to an investment account then go out and treat yourself to something nice - you earned it!

Pay off personal debt: High-interest debt, such as credit card debt, can be a significant drain on your finances. Balance transfers to 0% APR cards is one way to help slow the bleeding, but living without credit card debt must be a priority goal and one you strive to reach ASAP in 2023 and beyond. • Specific: Payoff credit card debt • Achievable: Login to your account and make a payment right now (in any amount). Once you have made one payment, set up a recurring transfer from your bank account to the credit card account and focus on paying off your balance as soon as possible. • Measurable: Write down your total outstanding credit card balances as of the beginning of this year and then on 12/31/2023 and calculate how much debt you have paid off. When the year-end balance gets to $0 - do a little dance, treat yourself to something nice, then divert that monthly transfer that previously went to pay down debt to a savings or investment account to keep building wealth!

Save for emergencies: It’s important to have an emergency fund in case of unexpected expenses, or to seize opportunities. Aim to save at least three to six months’ worth of living expenses in an easily accessible account. For example, let’s say you spend about $5,000/month on expenses and you want to build a 3 month emergency fund. Take the following steps: $5,000 x 3 = $15,000. This is the goal!

Open a high yield online savings account (you can currently earn ~4.0% interest compared to ~0.03% in a traditional bank account).

Divide $15,000 by 12 ($1,250) and schedule an automatic monthly transfer from your checking account to your high yield savings account.

Since interest will immediately start earning on your monthly contributions, you will more than meet your goal before the year is over. • Specific: Build an emergency fund • Achievable: See steps a - d above,

and do it! • Measurable: Calculate your total savings account balance today and then again on 12/31/2023.

If it is higher by at least your emergency fund goal - congratulations!

Invest for the future: Consider investing in a retirement account, such as a 401(k) or IRA, to save for your long-term financial goals. You can also invest in a taxable brokerage account for general wealth building and shorter term goals. The most powerful part of a successful investment strategy is time. The earlier you start, the higher your probability of success will be. Remember to align your investments with your goals. If retirement is 30 years down the road, don’t freak out about the drop in stocks this year - view it as a buying opportunity! If you need to save for an upcoming expense: new car, house, wedding, Bar Mitzvah - keep your money in safer investments such as Government bonds, high yielding CDs, or savings accounts. The accounts you chose to invest in are important, so do your research and/or speak with a certified tax or financial planner. • Specific: Contribute to an investment account • Achievable: Set up an automatic transfer either via payroll deductions or an automatic transfer from your bank account to an investment account. Fit this into your cash flow management plan. • Measurable: Calculate the balance in all of your investment accounts today and then again on 12/31/2023. If the balance has increased, congratulations - you have built wealth!

Just this past week my wife and I were reviewing our cash flow app together, and she found $70 in monthly subscriptions that we were not even using anymore. We canceled and will enjoy the $70 back in our pocket every month! I encourage all of you to put plans into action this year by writing down your plan, tracking it, and measuring the outcomes every year. I look forward to hearing about all the personal financial goals you will crush in 2023!

Cash Inflows + Savings/Investment > Cash Spending

The decision to start saving and investing is yours, but the “how” can be hard. We suggest speaking with a “fee only” financial planner operating as a fiduciary - having a CPA or tax background is a huge plus. Email commoncents@northbrookfinancial.com to schedule a free financial planning consultation with our team.

Elliot Pepper, CPA, CFP®, MST is Co-Founder of Northbrook Financial, a Financial Planning, Tax, and Investment Management Firm. He has developed and continues to teach a popular Financial Literacy course for high school students.