Fall is a time of transition — back to school, turning back the clocks and even getting back into real clothes as we head back to work. But NBC senior business correspondent Stephanie Ruhle wants you to take on a different type of regimen this fall — one of financial fitness.
With post-pandemic spending on the rise and holiday shopping already in full swing, there's no better time to check in on your finances. Ruhle has three things you can do right now to improve your finances and start fall feeling a little more in control of your money.
What's the first step toward getting your finances under control?
"First and foremost, you want to be aware of your money," said Ruhle. "I know it's the last thing you want to do. But I know you care about your money and you cannot make changes until you know where the money is going."
Ruhle says to follow your money for a few weeks. Track your spending by looking back at credit card or bank statements, or jot down notes in your phone when you're making purchases.
"A lot of times, we make very aspirational budgets and we forget how much money we spend on small purchases or impulse buys," she said. "Those are often the easiest things to cut out, and if you don't know they are happening you can't cut them."
Ruhle cautions that we should not be "really good" about spending during this tracking time since you want to get a true picture of where your money is really going. "You want to be totally honest with yourself here," she said.
Is it better to invest or pay off debt?
Shane in Cranston, Rhode Island asked Ruhle, "If I were to come into some money would it be more beneficial to pay off my mortgage outright? Or would it be better to take that money and put it into investments and continue to pay my mortgage casually, you know, for the next 30 years."
Ruhle said that debt is an issue for many Americans, whether it's your student loans, a credit card or even a mortgage, like in Shane's case.
"First you need to actually look at all of your debts and find out what interest you are paying on each of them," said Ruhle. Once you know what you owe, then you can prioritize.
"There are two methods to paying down your debt — the avalanche and the snowball," explained Ruhle. "With the avalanche, you pay down your debt that has the highest interest rate first, regardless of the balance. That will save you the most money in the long run."
For those who feel super overwhelmed, the snowball method, where you knock out your smallest debts first, may be a better option. "That way, you can take bite-sized pieces of your goal until it's done."
Ruhle reminds us that interest rates are really low right now, so double check to see if it makes sense to refinance your mortgage. "You do have to do the math and don't forget about your closing costs," she said. "But it could save you money in your monthly payments, or time paying it down."
"Shane might get a better return investing the lump sum and paying off the mortgage slowly, depending on the interest he's paying on the loan," she said.
What should an emergency fund look like?
Duane on Twitter asked, "How many months of expenses should be saved up in a savings account?"
"Once you know where your money is going, you can start saving for your goals," said Ruhle. "Too often we fall into the trap of waiting to save the money that's left over, but here's the thing -- money is almost never left over," she said. "If it's in your account, you'll want to spend it."
When it comes to Duane's question about savings, Ruhle said it's a good rule of thumb to have three to six months of living expenses set aside for emergencies.
Wondering how to do that?
Start by taking the amount of money you're looking to save and divide it by the number of paychecks you have until you want to reach your goal. "If Duane wanted to save $3000, that would be $250 per month for a year," she said.
Another key thing to do is to automate your savings. "We do it for things like our retirement accounts or health savings accounts," said Ruhle. "But you can use this trick for anything you're saving for."
Many banks will let you have multiple savings accounts for free, so look into high yield savings accounts which can generate a little more interest than your standard checking or savings accounts.
"Then set up your automatic transfers," said Ruhle. "When payday hits, you can move your money into those different accounts for different goals. Pretend like the money was never in your checking account in the first place," she advised.
If you do all of this, your fall will be off to a great financial start!
For more money tips anytime, go to On the Money.