Personal Finance 

A Money Rebuilding Year

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Construction WorkerIn every professional sport, there’s a concept of a “rebuilding year.” These are the years where the team is working on drafting good prospects, building up their young talent, and crafting a competitive championship-caliber team piece by piece. It’s difficult to field a championship team every year for more than a few years, with free agency and everything, so it’s expected that after a few years of stellar performance, you’re bound to have a few leaner years where you’re rebuilding your talent. The good teams do this well, with strong performing rebuilding years, and others do it poorly.

How does this apply to you? It’s a little downside psychology. With the recent economic crisis, a lot of folks are forced into their rebuilding years. You may have lost your job. Your investments may have lost value. Your money doesn’t seem to get you as far as it used to… you’re down, but not out. So turn this year into a money rebuilding year.

Plug Your Money Leaks

When things are going well, your small mistakes can be masked by strong performance. If you make a good income, all your money leaks are less apparent. That insufficient funds fee you paid because you forgot to transfer your money from savings to checking, the $15 a month subscription to Netflix you never use, and the leftovers you pitch because you don’t eat them. On their own, in a good year, they’re not a big deal.

If you don’t budget, give it a try for just one week. Write down everything you spend money on and total it at the end of the week. Factor in all the things that aren’t billed daily or weekly, such as rent and insurances, and you will have an idea of where your money goes. That simple exercise is the most important thing I will recommend in this entire post and if you do nothing else, do that. Now find the things you’re spending too much on, only you can be the judge of that, and trim them back.

Simplify Your Finances

One of the best things I ever did was simplify my finances by closing accounts I didn’t need and consolidating them. You may not know it, and I didn’t before I simplified, but all those accounts are like emotional baggage. I had a dozen online bank accounts and I’ve trimmed that back considerably. Our financial situation fits neatly into a box in my head, instead of all spread out on the desk like it was before simplification. Our CD ladder is at ING Direct, a few CDs at Ally Bank, and the rest of our savings at Everbank. Our mutual funds are at Vanguard and our individual stocks are at TradeKing.

See how easy that was?

Review Your Investments

The stock market has been bucking like a mechanical bull and if you were cautious, you put your head in the sand. If you tried to time the market, pulling out your investments, then you probably missed the recovery if a recent Hewitt Associates report is accurate. Regardless of how you reacted the last year, the key is to react properly now. Take a long look at your asset allocation and adjust it to what you want it to be. If you don’t know how to determine your asset allocation, read the linked article for some ideas.

Now that you know your target asset allocation, rebalance if you haven’t done so in the last year. It’s crucial that you do this on a regular basis so that you don’t end up with wildly out of balance allocations, which isn’t hard when equities bounce back big after a large fall.

Review Your Career

All too often we spend too much time in our careers and not enough thinking about our careers. By this I mean we don’t regularly update our resume, we don’t calculate whether our salaries and future growth prospects support our financial goals, we don’t investigate the job market for fear of reprisal, and we don’t do many of the things we would probably recommend to our closest friends.

Though it’s easy for me to say, right? I sit at home and write on a personal finance blog for a living. I don’t have to drive to work, sit in meetings, and fill out expense reports and time sheets. You’re right, but I did it for five years and I recognized that the most successful people in the company were those who had a plan. They needed to achieve the following milestones and minutestones to their goal, which ultimately was to provide for their families. They had loyalty to the company but it was second to their family’s interest, which no one can contest.

So if you haven’t taken a hard look at your career, do it now. If you’re out of a job, now’s the perfect time to be careful how you re-enter the workforce. As much as I may be unhappy with 99 weeks of unemployment, I am ecstatic if someone collects all 99 weeks and picks a job they will, and can, stay in for forty years.

Pick Up A Hobby

I’ve learned that most people need to be working towards something. Whether it’s a lower golf score, all the achievements in an XBox game, the largest Farmville farm or the next set of weights at the gym, we all have hobbies. When you don’t have a hobby, you get bored and bored people languish mentally. So if you don’t have something outside of the workplace for you to focus your energies on, for you to refresh with, try to find something. There is going to be something out there that you enjoy, something that invigorates you.

I hope this post has been helpful and if you have any tips on making the most of a rebuilding year, please share them below!

(Photo: saad)

{ 9 comments, please add your thoughts now! }

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9 Responses to “A Money Rebuilding Year”

  1. DIY Investor says:

    Good advice all around. Market is, as you put it, “…bucking like a mechanical bull” with a tug of war between really good economic data and problems in Europe and China. If people are dollar cost averaging and they see a big down day they should think about putting funds in ahead of time. For those drawing down their “nest egg” they should have a process whereby they aren’t hurt by reverse dollar cost averaging-i.e. forced to sell stocks on days where there is a big drop.

  2. zapeta says:

    I think these are great tips regardless of if the economy is doing great or doing poorly. Its always a good idea to budget, review your investments, etc.

  3. KP says:

    Jim this is a great post; I especially like your tips under Money Leaks. Tracking how you spend your money gives you tremendous insight. I’ve learned that this tip is what keeps the wealthy people wealthy 😉

    • Shirley says:

      When I retired a few years ago, I created a spreadsheet that was actually just an expenditure listing to see exactly where our money was going, including gifts and into savings. I was pleased with some results and amazed at others. It lists every expenditure made by CC or check… we seldom use cash. It is definitely an eye-opener and a great guide to corraling our finances.

  4. Squirrelers says:

    Regardless of whether a good year or a rebuilding year, the tips in this article are useful. I like your tips on tracking expenses for a week; I would even extend that to a month. It covers all bills and one-time monthly charges, and tells you a lot about where you money is going and what your habits are. There is a lot to be learned about onself from such data.

    Taking stock of where one is with respect to health, wealth, and relationships is all very important. They are all interrelated.

  5. eric says:

    Yeah I think these tips are useful any year. Actually it should somewhat of an annual thing. Good tips!

  6. All great tips. I just recently simplified my finances by closing two bank accounts that I barely used. No reason to leave them open when they are not being used. It also makes it easier to track my money.

    I also agree with reviewing your career. I know many people that are underpaid, but content with their current jobs. Nobody should ever feel that a company will take care of them because they can be let go at any time. This statement you made is how many should live their lives, but devote themselves completely to their jobs:

    “They had loyalty to the company but it was second to their family’s interest, which no one can contest.”

  7. jsbrendog says:

    it is time for me to rebalance the 401k and i have been putting it off for reasons of dread. I just have no idea what i am doing and dont want to screw it up….

    i should prob update the resume too…man you know how to make a guy feel lazy haha

  8. Ha. That’s a fun way to think about it. I dropped most all of my savings last year on refinancing our mortgage to get rid of the 2nd mortgage (used instead of PMI), and so I spent the whole year “Rebuilding” my EF. It was slow and steady, but things are starting to look better again. 🙂

    The whole “Simplify Your Finances” thing sure doesn’t fit in well with the “Grand Plan”. I just opened about 4 new accounts. 🙁 But, I’m also planning on closing some old ones I had, so it works out for the better.

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