Seven Steps to Get Your Finances Back on Track

CNN Money lists seven steps to get your finances back on track (along with specific tips for each) as follows:

1. Get in touch with a better reality.

• Boost your emergency fund.
• Tap the power of a Roth.
• Cut out big-ticket money drains.

2. Work on your plan b

• Act as if you're already job hunting.
• Do a hard-nosed assessment of the danger.
• Expand your network -- before you need to.
• Plot a career change, just in case.

3. Focus on the first step

• Automate.
• Pick one expense to cut.
• Tell a friend.

4. Don't be guided by fear

• Ratchet down your equity holdings.
• Get income you can rely on.

5. Put down the mouse (and the remote)

• Set limits on monitoring your portfolio.
• Do quarterly checkups.
• Force yourself to take a breather.

6. Stop keeping score

• Rethink the buckets that you put money in.

7. Simplify your financial life

• Pare down on plastic.
• Consolidate your accounts.

Overall, this is some decent advice, but if I was telling someone how to get their finances back on track, my list would be shorter.

Anyway, there are some points in here that I wanted to comment on:

• "Work on your plan b". I've said over and over again that your career is your #1 financial asset and you need to treat it accordingly. This means you need to protect it (with medical, disability, and life insurance) as well as work it aggressively to make the most you can of your career.
• "Do quarterly checkups." Personally, I do a monthly check of my results for the prior month. In particular, I check my net worth and cash flow, the two measures that determine the health of anyone's finances. 
• "Consolidate your accounts." As I've noted, I'm consolidating investment accounts so all I need to deal with is a couple of companies. There's a lot to be said for simplicity through consolidation.

Did any of these tips stand out to you?

Comments

[Kevin S]

Why would they recommend a Roth as a must-have? From what I have read, by taking advantage of a Roth over a typical 401k/IRA, all you are really doing is betting that your tax rate now is lower than what your tax rate will be when you retire, which does seem likely, but is not a foregone conclusion.

The article did mention something I was not aware of- that contributions to a Roth can be withdrawn without penalty at any time. That is nice for a little additional peace of mind, but I wouldn't necessarily recommend it for a typical person with spending and impulse control problems.

Am I missing something? Is there an article I should read that will convince me I am wrong?

[Buddy68]

For most people, a Roth would give them a better tax rate - you are obviously younger when you contribute and if you are early in your career you are making less money(and hence a lower tax bracket). Give the deficit, it is also almost a no-brainer that taxes are on the way up.

Apart from asset allocation, some planners talk about tax allocation. It is also allows some hedging so that some money in retirement is coming from ones IRAs and 401Ks and some money from Roths and some money from things such as dividends and capital gains that may have better (or worse tax rates)

[Guy G.]

Hey,
My list would probably be shorter too.
1. Set up a tight budget that allows you to enjoy life a little.
2. Automate and forget, then revisit quarterly and adjust
3. find ways to earn more income so you can accelerate the plan
Rinse and repeat.
Cheers
Guy

[Christina]

Very brief but this will definitely be useful for me. I need to get my finances back on track, I kept trying different methods based on what I've read but I don't get any luck. I don't blame the method, I guess the time I put into it. This one is more direct and I think something I could follow and don't require too much time. Thanks.

[jclimber]

A Roth IRA is very useful if you cannot contribute to a deductible IRA (due to income limits).

Tip#4 - I think it should just say come up with an asset allocation you are comfortable with (be it 90% equities or 10% equities).