The Great Money Reset

1. Assess your current financial position before making big changes

Run through the numbers, and you, too, might find that those dreams of making a change are more realistic than you think.

Conduct a comprehensive financial analysis. Start by calculating your current income, assets, and liabilities. Consider your housing situation, spending habits, and any outstanding obligations to others. This analysis will help you understand your financial starting point and identify areas for improvement.

Create multiple future scenarios. Develop best-case, middling, and worst-case scenarios for your planned changes. Consider how each scenario would affect your finances over the next three years and beyond. This exercise will help you anticipate potential challenges and opportunities.

Consider incremental steps. If a full-blown money reset isn't feasible, explore smaller changes that could still move you toward your goals. These might include:

• Making a lateral move within your industry
• Negotiating different work arrangements in your current job
• Taking a shorter sabbatical instead of quitting outright
• Pursuing part-time education while continuing to work

2. Curb consumption to unlock financial freedom

The not-so-hidden secret to achieving your dreams is: spend less.

Examine your spending rules. Analyze the unspoken rules that guide your consumption habits. Ask yourself:

• What do you really need in life, and what do you only think you need?
• Do you ever feel guilty, insecure, or anxious about purchases?
• Are you making impulsive purchases? When and why?
• How are relationship dynamics influencing your spending?

Experiment with spending changes. Try making significant adjustments to your spending habits for a set period. This will help you determine which changes are sustainable and which might be too extreme. Remember, the goal is to find a balance that allows you to save more without feeling deprived.

Cultivate a savings mindset. Develop habits that prioritize saving over spending. This might include:

• Automating savings contributions
• Waiting 24-48 hours before making non-essential purchases
• Finding free or low-cost alternatives for entertainment and hobbies
• Regularly reviewing and canceling unnecessary subscriptions or services

3. Negotiate better work arrangements in a shifting job market

If you don't ask, you don't get.

Understand your value and options. Research the job market for your skills and experience. Understand what other employers are offering and what unique value you bring to your current role. This knowledge will give you confidence in negotiations.

Prepare a comprehensive pitch. Use the BULLY framework to structure your negotiation:

• Button up your Big Ask: Clarify exactly what you want
• Understand the full picture: Research your company's situation and your boss's perspective
• Lose the ego (sort of): Be confident but not arrogant
• Leave time to practice the conversation
• Don't Yuck it Up: Remain professional, even if things don't go your way

Consider all aspects of compensation. Look beyond salary to negotiate for:

• Flexible work arrangements
• Additional vacation time
• Professional development opportunities
• Better health benefits or retirement contributions
• Performance bonuses or equity options

4. Invest wisely for both present opportunities and future security

Invest in you—you can't afford not to.

Stick with passive investing for long-term growth. Despite market volatility, index funds remain a smart choice for building wealth over time. They offer diversification and lower fees compared to actively managed funds.

Allow for some calculated risks. Consider allocating a small portion (e.g., 5%) of your portfolio to higher-risk investments like cryptocurrency or start-ups. This gives you the opportunity to benefit from potential high returns without jeopardizing your overall financial security.

Maintain a balanced portfolio. Keep a mix of stocks and bonds appropriate for your age and risk tolerance. This helps buffer against market volatility and reduces the likelihood of making emotional investment decisions during downturns.

Key investment considerations:

• Limit company stock to no more than 10% of your portfolio
• Don't raid retirement accounts to pay off low-interest debt
• Adjust your investment risk based on your specific needs and goals, not just your age

5. Leverage tax strategies to fund your life transition

The IRS can be your friend during a Great Money Reset.

Optimize your tax brackets. If you anticipate a temporary drop in income due to your life changes, consider strategies to lock in your future tax liability at a lower rate. This might include:

• Converting traditional IRA funds to a Roth IRA
• Realizing capital gains strategically
• Front-loading charitable donations

Explore business-related tax benefits. If you're considering self-employment or starting a business, investigate potential tax advantages such as:

• Home office deductions
• Retirement plans for the self-employed (e.g., SEP-IRA, solo 401(k))
• Writing off business-related expenses

Maximize charitable giving strategies. Consider tax-efficient giving methods like:

• Donating appreciated stock to avoid capital gains taxes
• Bunching donations in high-income years
• Opening a donor-advised fund
• Making qualified charitable distributions from IRAs if you're over 70½

6. Strategically buy, sell, or evolve your real estate holdings

Equity equals choice, but you have to do what Pam and Tom did and move decisively while you have the chance.

Reassess your housing needs. Consider whether your current living situation aligns with your future goals. Be open to unconventional options, such as:

• Downsizing to free up equity
• Renting instead of owning
• Exploring alternative locations that offer a lower cost of living

Time your real estate moves strategically. While it's difficult to perfectly time the market, consider selling when:

• Local real estate prices are high
• You have significant equity built up
• Your life circumstances have changed (e.g., empty nest, job relocation)

Be cautious about conventional wisdom. Question common real estate "rules" that may no longer apply, such as:

• Always buying a fixer-upper
• Never selling in a down market
• Automatically choosing to buy over rent

7. Start, sell, or pivot a business to align with your goals

Don't let a good crisis go to waste!

Start small and test your ideas. Begin with a side hustle to validate your business concept and build skills without risking your financial stability. This approach allows you to:

• Learn about your target market
• Refine your product or service offering
• Build a customer base gradually

Consider selling at the right time. If you own a business, be open to selling when:

• The market for your business is strong
• You've taken the company as far as you can
• A sale would provide life-changing financial security

Evolve your business to meet changing needs. If your current business model is struggling, explore ways to pivot or adapt, such as:

• Identifying new customer needs or market trends
• Leveraging existing skills and resources in new ways
• Forming strategic partnerships to expand capabilities

8. Invest in education and skills that truly advance your career

Think critically about how education will benefit you, what it will cost, and how else you might reach your goals.

Identify specific career benefits. Before pursuing additional education, clarify:

• The exact skills, knowledge, or credentials you hope to gain
• How these will concretely benefit your career (e.g., higher salary, new job opportunities)
• Whether the potential benefits justify the time and financial investment

Explore funding options carefully. Consider how you'll pay for education without compromising your long-term financial health. Options might include:

• Employer tuition assistance programs
• Scholarships or grants specific to your field or background
• Part-time study while continuing to work

Investigate alternatives to traditional degrees. Look into options that may provide similar benefits at a lower cost or time commitment, such as:

• Professional certifications
• Coding bootcamps or other intensive short-term programs
• Online courses or MOOCs (Massive Open Online Courses)
• On-the-job training or internal company programs

9. Navigate family dynamics during financial transitions

Don't give up on your dream just because a family member doesn't get it. You know best what's right for you.

Seek advice thoughtfully. When consulting family members about your plans:

• Consider their potential biases and motivations
• Be clear about what kind of input you're seeking (e.g., brainstorming vs. validating a decision)
• Remember that you're the one who must live with the consequences of your choices

Handle financial assistance carefully. If accepting money from family:

• Clearly document whether it's a gift or a loan
• Specify repayment terms if applicable
• Discuss and agree upon any expectations attached to the assistance

Communicate your plans effectively. When sharing your decisions with family:

• Explain your reasoning and the thought you've put into the decision
• Be prepared to address their concerns
• Stand firm in your choices while remaining respectful of their perspectives

10. Plan for long-term financial resilience and worst-case scenarios

You'd darn well better contemplate the end of your life and create an estate plan as part of your Great Money Reset.

Build financial independence gradually. Embrace the FINE (Financial Independence, New Endeavor) approach:

• Save aggressively in the years leading up to your planned transition
• Consider lifestyle changes that will lower your expenses long-term
• Build up non-retirement savings to provide flexibility during your transition

Prepare for potential setbacks. Address worst-case scenarios by:

• Updating your will and other estate planning documents
• Securing appropriate life and disability insurance
• Ensuring you have adequate health insurance coverage, especially if leaving an employer-sponsored plan

Balance present enjoyment with future security. While saving for the future is crucial, remember to:

• Allocate some resources to current experiences and personal growth
• Regularly reassess your goals and adjust your plan as needed
• Find a sustainable balance between frugality and quality of life

Last updated: October 10, 2024