On the heels of Daylight Saving Time (DST), we look forward to enjoying the longer days ahead. Truly, though, we neither gain nor lose an hour as we adjust our clocks forward and backward twice a year. Each day consists of the same 24 (approximate) hours as always. In reality, we simply adjust how we measure time to make it work toward our greatest advantage. Spring and summer provide more hours of daylight for those of us in Alabama (and further away from the equator), and implementing DST allows for energy savings by merely alternating the clock.
As you have modified your watches to make the most of these hours, it’s a good time to revisit your financial DST, a.k.a. Dollar Saving Tactics, and ensure you are maximizing your cash flow to help you reach your goals.
1. Review Your Cash Flow. Just as daylight-saving time begins with an understanding of how much daylight is available, the first step financially in maximizing your dollars is to review your cash flow.
What are your current income sources and expenses? Has anything changed over the past year? Do you anticipate any changes within the next 6-12 months?
Annual salary increases or regular bonuses provide more income, but without recognition, may be overlooked and simply absorbed into recurring spending. Do you have a plan in place for any new dollars?
Similarly, reviewing your expenses periodically provides you with the opportunity to ensure your spending aligns with your intent. How much you spend is one area you control within your financial plan, and it also directly impacts your ability to save toward your goals. Are there any expenses that should be changed or upcoming expenses that need a savings plan?
2. Maximize Your Cash Flow. Understanding your cash flow allows you the opportunity to adjust your savings rates to work towards your goals efficiently. For this exercise, it may be helpful to examine your “buckets” of savings.
Do you have a sufficient Emergency Fund?
At a minimum, you should have 3-6 months of your expenses in cash savings, readily accessible. Given the change in interest rates over the past year, it is also a good time to review the yield you are earning on your cash.
What are you saving towards your Retirement Fund?
This bucket can take many forms (401k, IRA, Roth’s, etc.), each with its own rules. Contributions should be set to recur automatically and regularly. As you review your savings, it is important to ensure you are taking advantage of any matching contributions your employer may offer, as well as adjust your amounts to fully utilize the catch-up provisions once you turn 50.
Do you have extra cash flow that could be invested for accumulation and other goals?
If both your Emergency Fund and Retirement Fund buckets are being maximized, you may be able to direct any additional cash flow towards other savings. This bucket is flexible, allowing accumulation for any large expenses in the future as well as providing tax diversification.
While the original intent of Daylight Saving Time may have been to reduce electricity usage, we enjoy the ability to be outside for longer in the summer. In the same way, implementing Dollar Saving Tactics ensures you fall back on your Plan and gives confidence that you are springing forward toward your goals. If you need help, reach out to a Bridgeworth advisor today.
Bridgeworth Wealth Management is a Registered Investment Adviser.