Managing Day-to-Day Expenses and Surplus Funds

I. Introduction

Effectively managing day-to-day expenses is a vital part of any financial strategy. It is the foundation upon which your financial security is built. In this article, we will cover how to manage your checking account, track your daily expenses, avoid common financial pitfalls, and handle surplus funds to maximize your financial potential.

II. Managing Your Checking Account

Your checking account is your primary tool for managing day-to-day expenses. To manage it effectively:

1. Track Your Expenses: Keep a record of every transaction. Use budgeting tools like Mint or Google Sheets to categorize and visualize your expenses.
2. Avoid Overdrafts: Keep a buffer in your account to avoid overdraft fees. Set up alerts to notify you when your balance is low.
3. Review Regularly: Regularly review your account statements to spot any unusual or fraudulent activity early.

III. Treating Investments as Expenses

One effective strategy for managing your finances is to treat your investments as ‘costs’ in your budget. This ensures you consistently set money aside for your financial future.

1. Automatic Deductions: Set up automatic deductions for your investments. Online investment tools like M1 can manage this for you.
2. 401K Investments: These should be deducted from your paycheck before it hits your checking account. Try to maximize your contributions up to your employer’s match, and then consider whether you want to contribute more based on your long-term goals.

IV. Managing Surplus Funds

Surplus funds can be a valuable resource for building your investment layers and securing your financial future. Here’s a step-by-step approach to effectively manage your surplus funds:

1. Emergency Fund: Begin by prioritizing your emergency fund. Allocate a portion of your surplus funds towards building an emergency fund that can cover 6-9 months of living expenses. This fund acts as a financial safety net, providing you with peace of mind during unexpected circumstances.
2. Short-Term Investments: Once your emergency fund is established, shift your focus to short-term investments. Allocate a portion of your surplus funds towards investments with a 3-7 year time frame, such as income-based ETFs, high-interest CDs, or stable bond or income ETFs. These investments provide a balance of liquidity and stability.
3. Long-Term Investments: As you continue to accumulate surplus funds, you can allocate them towards long-term investments. These investments typically have a time horizon of 7+ years and aim for growth. Consider diversifying your portfolio with growth-oriented ETFs, such as total market stock ETFs, growth ETFs, and foreign growth ETFs. Regularly review and rebalance your portfolio to ensure it aligns with your long-term goals.

Remember, this strategy is a general guideline, and the specific allocation of your surplus funds may vary based on your financial situation and risk tolerance. Regularly evaluate your financial goals, reassess your investment strategy, and seek professional advice if needed.

V. Conclusion

Managing your day-to-day expenses and surplus funds effectively is a critical step in maintaining financial health and reaching your financial goals. By treating investments as costs, setting up automatic deductions, and strategically managing surplus funds, you can maximize your financial potential and security.