How to get your financial life together in 2020

2019 is coming to a close, and there are only 24 days until the start of the new decade. The next few weeks will be a whirlwind of scrambling to buy last-minute Christmas gifts, finishing up work tasks before the holidays, and setting new year’s resolutions. 

If one of your resolutions is to get your financial life together, here is a list of financially responsible things to do in 2020 to accomplish just that.

1. Track your expenses

There is a saying – what gets measured gets managed. This holds extremely true for your finances. Tracking allows you to see exactly where your money is going.

You may be surprised by what you discover – or it may not surprise you at all. Either way, understanding how you spend your hard-earned money is the first step to getting your finances together. 

There are several ways to track your spending:

You can download an app (like Mint) that connects to all your bank accounts and automatically imports all the transactions for you.

If you are spreadsheet-savvy, you can choose to manually track your expenses in Excel or Google Sheets. Or if you are the pen-and-paper type, you can write in a notebook or planner.

There are many ways to do it, but it’s important that you choose a method that works for you that you can stick to.

2. Calculate your Net Worth

When setting up your finances, one of the most important places to start is calculating your net worth. Your net worth lets you understand your current financial situation and gives you a baseline for tracking your progress.

How to calculate your net worth:

1. List your assets (what you own) – Include cash, money in your bank accounts (savings and checking), the value of your investments, your car, and the market value of your home

2. List your liabilities (what you owe) – Include student loans, credit card debt, mortgage, car loan, and money borrowed from friends or family

3. Net worth = Assets – Liabilities

One of my favorite tools to track my net worth is Personal Capital. It is a free app that allows you to connect your financial accounts to give you a real-time view of your net worth (so you don’t have to calculate it yourself) and your progress over time.

Whether you calculate your net worth manually or use an app like Personal Capital to do it for you, knowing where you stand financially is important. 

3. Budget

The b-word is scary to the majority of people. It sounds boring, complicated, and restrictive, but it doesn’t have to be this way. A budget is simply a way to assign every dollar a job. 

The process for budgeting starts with 

1. Figuring out how much you will make that month

2. Listing out your expense categories (i.e. rent & utilities, groceries, eating out, transportation, shopping, fitness, etc

3. Allocating your income to each of these categories until you run out of dollars to allocate – this is called a zero-based budget

This process of allocating dollars typically happens at the beginning of the month. As you spend money throughout the month, you will track your expenses (per #1 above) and sum up your categories to compare your actuals vs. your budget (what you determined at the beginning of the month). 

Budgeting allows you to allocate money to areas of your life that you value. For example, if you value health and fitness, you may budget more money in those categories than shopping. You have the freedom to control how you budget!

4. Save a 3-6 month emergency fund (& open up a high-yield savings account)

No matter what, life happens. This is why emergency funds are important. It is recommended that you save 3-6 months of expenses to cover any unexpected events that may happen. It’s also important that you save this money in a high-yield savings account.

If you already have some money sitting in a savings account that is yielding 0.01%, you are losing money! There are many high-yield savings accounts out there that are offering more than 1.5% interest for your business. It’s time for you to break up with your bank because you deserve better. 

5. Start learning about investing

If you haven’t started already, 2020 is the year you start investing! It is extremely difficult to build wealth by simply saving in a regular bank account. Investing allows your money to compound in the market, which is just another way to say that your money will work for you. 

If you are completely new to investing, reading and learning about it is one of the best things you can do for yourself. I recommend starting with The Simple Path to Wealth by JL Collins. The book is easy to follow, very tactical, and gives you a great start to your financial independence journey. 

You can also start taking small steps towards investing. Look into your company 401(k) and ensure that you are contributing to get your employer’s match. Then increase your contributions by 1% each year. Look at the funds that are available in your employer’s 401(k) plan and start investing the money you are contributing.

The best time to plant a tree was 20 years ago. The second best time is now.

Income Report #1: November 2019

For a while, I have been thinking about posting monthly income reports on my blog. However, I struggled with being this transparent at times. I would worry about how others would perceive me, if I wouldn’t be motivating anymore if people couldn’t relate to me, or if my accomplishments would be discredited because of what I make.

I want to start out by saying that I am not posting this to brag or make anyone feel bad. There will always be someone out there making more than you. I’ve learned that comparing myself to others is only a waste of time, and that it is better to focus on how I can grow, improve, and be better. If anything, I use others’ success stories to motivate myself!

This leads me to my income reports. The purpose will be twofold (1) It is a way for me to document the growth of my income over time as I invest in more side hustles and (2) hopefully, it will inspire my readers to track and pursue their own income growth as well.

For some context, I currently work full-time as a consultant making $105,000 annual base salary. Outside of my 9-5, I manage @mywealthdiary, a personal finance Instagram account where I share my journey to multi-millionaire.

Now let’s dive into the details of November’s income report.

Total November Income: $10,423.19

November was a 3 paycheck month for me based on my bi-weekly pay schedule, so I made $2,591.62 more than a normal month.

I also made an additional $2,648.32 through side hustles.

Some of my side hustle income came from the following:

  • Had a 45-minute call with a marketing company and received a $250 gift card for my time
  • Sold some clothes on ThredUp for an easy $33.31 on items I’ve been looking to get rid of for a while
  • Used an offer on a Starbucks coffee purchase using my Chase Sapphire Reserve credit card and received a small discount of $0.27 and got $119.98 cash back on my Amex Blue Cash Preferred credit card
  • Made $1,900 through SoFi referral bonuses, which means 39 people signed up through my link (yes to opening HYSA’s and making your money work for you!!)
  • Received $160 worth of Amazon gift cards through Personal Capital
  • Made $25.30 of interest on my high-yield savings accounts at Wealthfront and SoFi
  • Only made $2.46 in dividend income this month 😦
  • The $157 of other income includes some money I made playing poker with friends and a $100 Amazon gift card I received from signing up for the Amazon Prime Rewards credit card.

My goal is to increase the income I make outside of my 9-5 job. I hope that by documenting every penny I make, I can continue to grow my side hustles and generate multiple streams of income until I no longer need my full-time job! I also hope that being this transparent helps someone out there gain the motivation to work harder, find more side hustles, and get their financial life in order before the new year!