Americans should have an intimate relationship with their wallets, according to Alexa von Tobel, founder and CEO of Learnvest.com and author of Financially Fearless. She delivered a keynote speech at Becker's ASC 24th Annual Meeting: The Business and Operations of ASCs Oct. 27 in Chicago, about the money mantras to live by.
About eight years ago, Ms. von Tobel created Learnvest, a financial planning software, which Northwestern Mutual acquired in 2015.
"Money has this odd dynamic where everybody always feels like they don't have enough of it," Ms. von Tobel said. "It's not about making more; it's about what you make and making really good decisions."
She offered six critical steps for people to start feeling good about their money.
1. Organize. The average American holds 14 different financial accounts. Ms. von Tobel suggested consolidating those accounts into one or two vendors. Additionally, create an email address solely for financial account alerts, because bills will often get lost in the shuffle of a person's main email.
"If you open your bills, you will find that you are likely often overcharged," she said. "If you're not looking at your money, you're not taking care of your money."
Credit scores are also critical to a healthy wallet, and Ms. von Tobel recommended watching this score like a hawk on sites like creditkarma.com and annualcreditreport.com. If a credit score is above 760, it is in great shape.
2. Focus. Two key components matter when sorting through finances: income and expenses. Income reflects how much a person makes post-taxes, and expenses relate to what a person's life actually costs. Ms. von Tobel stressed 50 percent or less should go toward essentials, inclusive of shelter, transportation to work, utilities and groceries. Twenty percent should go toward savings and 30 percent funnels toward personal.
"Your rent or mortgage should never be more than 30 to 35 percent of your income," Ms. von Tobel said.
3. Plan. Ms. von Tobel labeled this strategy the "Monopoly step," indicating a person must pass the following three tests to start financing something else, like a vacation.
• Create an emergency fund with liquid cash: The emergency fund should contain enough for three months for those in their early career; six months for those in their middle career; nine months for those in their late career; and 12 months for those with a family.
• Conquer debt: Get rid of credit card debt and car loans. Good debt includes mortgages and school loans, because they are tied to assets.
• Save for the future: In retirement, a person's life tends to become less active and costs likely decreases. The 80 percent rule demonstrates the idea that a person will live off 80 percent of the costs in retirement he or she currently spends.
4. Build. This step involves saving for other aspects of life, such as a child's college education. Ms. von Tobel noted, though, that people must save for themselves before they start saving for their children. For those interested in buying a home, Ms. von Tobel said a person must be able to put 20 percent down. Additionally, she stressed not buying a home unless a person wants to hold it for seven years.
"One big life hack is under spend on your home and you'll feel rich everywhere else," she advised.
5. Protect. This is the insurance step. Ms. von Tobel suggested researching all relevant insurance policies (homeowner's, disability, term life, umbrella, long-term care) as well as estate docs (living will, beneficiary forms, power of attorney, trust docs, last will and testament).
"If you asked me, how do I promise I never go bankrupt? I would tell you, well it's simple: make sure you're always insured," she said.
6. Maximize. A key investment strategy entails a person putting money into the market that he or she can keep there for the long-run. Ms. von Tobel emphasized the "rule of 5" — if a person needs to use the money in the next five years, he or she shouldn't invest it.
A financial plan's final step is to achieve, or actually do all of the above steps: "This is where it's really good to either work with someone else or have a buddy who holds you accountable," concluded Ms. von Tobel.