 | | ILLUSTRATION: TAMMY LIAN | | |
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| Not everyone likes looking in the mirror, but I do. But by now, I know there's an optimal amount of time you should be doing this. Just a glance and I may not notice the clump of food in my hair before my work Zoom calls. Stare too long and I start poking at my face and noticing all kinds of imperfections. | | |
| I think there is something similar going on when you look at your finances. A quick take and you may not be able to see all the places that need adjustments, but spending too long (depending on who you are!) may be stressful. The key is to find a happy place where you can feel like you've accomplished something, but not get to the point where you feel overwhelmed. How do we know where that point is? The only way is to try and see. Just like all my friends who come to me to ask "how can I do better with my money?" It depends on your situation. After all, how can we know where to improve our finances unless we know our money situation well—both what it is and what it should be. When we talk about tolerance in investing, it's usually about risk. And while that's true of personal finance too, there's also the tolerance of not getting deterred when handling financial chores. Creating a regular schedule for a checkup can also help, whether it's daily or weekly or monthly or quarterly. I have made my share of financial mistakes in the past from not checking in. So take the time. They say time is money, and the time devoted to bettering your finances may be the truest of this truism. — Bourree Lam, Deputy Coverage Chief, Life & Work | |
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 | | WARM-UP: Lizzo, "Truth Hurts" | Personal finance isn't all about planning, but sometimes it is! For this warmup, write down the breaks you're going to allow yourself during this challenge. | | | | | | |
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| Break planning is a big part of getting things done without losing momentum, and having things to look forward to is a big part of personal finance as well. Building in breaks will help you break the exercise into manageable smaller chunks. Plan three to five; each should take no more than 10 minutes. Whether it's a set of stretches, an errand, a snack break—make sure it doesn't take more than 10 minutes. (These shouldn't be one-hour breaks—do that when you're done!) | |
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| Savings Tip: | Keep a call log. | | |
| Between student loans, credit cards and rent, you might be making lots of finance-related calls right now in order to stay on budget, or just get by. It's a good idea to take notes when you're on the line—who you called, when, the name of whomever you spoke to, any agreements made—so that you can easily reference these details if you talk to them again. This way you're not starting from scratch each time. —J.J. McCorvey | |
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| ⏰ Suggested Time: 2 hours, or the time you'd spend arguing with your friend/sibling/parent about the merits of your/their favorite: sports team, BTS member, economic concept, moisturizer or Taylor vs. Beyoncé. This challenge has three levels that cover conventional advice for each topic. If you feel like you need more help, consider consulting a professional financial advisor. - Easy: Retirement
- Medium: Investments
- Hard: All My Tax Breaks
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| First, gather all the documents and passwords you'll need to do this challenge. For retirement savings and investment allocation, that means all your retirement accounts (including 401(k)s, IRAs, pension benefits and brokerage accounts). If you're planning to retire with a spouse or partner, gather their accounts as well. You'll also need your Social Security information to use the government's Retirement Estimator tool. (Note you'll need to create an account to get access to the tool, or you can use this alternative for a less personalized estimate.) For tax breaks, find your tax preparation documents for 2022. | |
| Step 2: | Missing anything? | | |
| Many of us lose track of old retirement accounts as we change jobs throughout the years. Thousands of Americans don't collect pension payments they're entitled to. Here's how to find all your old retirement accounts: Start by finding your old employer and send a letter or email requesting information. Here are more details from our retirement reporter Anne Tergesen on what to do if your situation is a little more complicated. | |
| Step 3: | What will you need? | | |
| Now estimate your annual spending in retirement. First, use the government's Retirement Estimator tool to see how much you may get in Social Security a year. Then, see how much more you'll need in addition to that—which is how much you'll draw from savings a year. Say you think you'll need $60,000 a year in retirement. Deduct your estimated Social Security payments—say it's $20,000. Then you'll need $40,000 from your savings. Now multiply that number by 25. The result is what you would have to save to withdraw that amount a year without violating the 4% rule, the conventional drawdown formula for avoiding a substantial risk of running out of money in retirement. | |
| Step 4: | What will you have? | | |
| Go back to your passwords and accounts from Step 1. Check on your retirement accounts: How much do you have saved up right now across all your accounts? Write that number down. Now put that number, along with your age and how much you contribute a year, in the WSJ Retirement Calculator. The calculator does take into account Social Security payments. | |
| Step 5: | Adjust your saving habits | | |
| If you'll need to increase your savings rate in order to have a better shot at retiring without worry, start adjusting your habits now no matter how far (or close) you are to retirement. Here's a tip from Anne Tergesen: | |
| Your saving goal may sound impossibly high. If reaching it would require you to eliminate things you enjoy, you may feel deprived and lose the ability to stick with it. The key is to make your goals as specific and realistic as possible. For example, if you are currently saving 5% and need to get to 15%, pledge to increase your savings rate gradually—for example, in two percentage point increments over each of the next five years. If the increases coincide with annual raises, you may not have to cut much from your budget. | | |
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| Now that you've done the self-audit on your retirement funds, look at your investments—from how much you're investing a month to what you're investing in. Here's a tip from our investing columnist, Jason Zweig (WSJ subscribers can sign up for his newsletter here!): | |
| Investing for the long run can be surprisingly painful in the short run. In turbulent times it's even more important than usual to improve your information hygiene, by screening out bad investing influences, and to cultivate an environment of calm and orderly decision-making. Think of yourself not as a cheetah chasing down gazelles, but as a squirrel burying acorns. Instead of trying to get rich quick by trading the hottest stocks as fast as possible, work on developing your discipline and building good habits: Diversify with mutual funds or exchange-traded funds that hold hundreds or thousands of stocks and bonds from the U.S. and around the world. Favor funds that charge well under 0.5% in annual expenses. Keep them for years on end, through thick and thin. Automatically add to your holdings, ideally once a month. Repeat until wealthy. The results may take decades, but eventually those acorns you've been burying will become giant oaks. | | |
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| Take a look at all the tax breaks you're currently taking and look at whether you're taking full advantage. Here's a tip from our tax reporter, Ashlea Ebeling: | |
| Many tax breaks are adjusted for inflation each year, and high inflation means taxpayers can save thousands more in various tax-advantaged accounts than in the past. If you pay attention and increase your contributions, you'll save more in taxes. Maximum contribution limits went up for individual retirement accounts, 401(k)s, healthcare flexible spending accounts, and healthcare savings accounts. Contribute annually and aim for the new higher contribution limits. Check out the WSJ Tax Guides for more tips. | | |
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| 💬 COMING NEXT WEEK: A little more conversation | |
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| Was this challenge too difficult, too easy or just right? Give us your feedback, along with any tips you want to share with others who have subscribed to this challenge, by replying to this email. We'd also love to see your goals note, so please feel free to take a screenshot or a picture of it and send it to us—we'll be reading! This newsletter course was created and edited by Bourree Lam, Julia Carpenter, Robin Kwong and The WSJ newsroom. By submitting your response, you are indicating that your answers may be investigated and published by The Wall Street Journal and you are willing to be contacted by a Journal reporter to discuss your answers further. In an article on this subject, the Journal will not attribute your answers to you by name unless a reporter contacts you and you provide that consent. By submitting photographs or videos ("material") you agree that Dow Jones & Co., publisher of The Wall Street Journal, has the perpetual right to use, publish and modify the material in any medium. You represent and warrant that you own the rights to the material you submit, and that the material and any other information you submit are accurate and not false or misleading. | |
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