A Quickie Financial Health Check
As high-profile as money is in our daily lives, organizing and planning our finances isn’t always high on the priority scale. In fact, we often put it last or close to it. But here’s why it should be a top priority: When you put consistent bits of time into being financially organized and financially secure, everything in your life improves. Even your health and relationships are affected. The time you put in, even if it’s a half hour a week, is well worth the benefits you’ll reap. And heading into a new year is a perfect time to make a fresh start.
Here’s a 6-point checklist to help you move forward for 2017. Even if you accomplish one of these, you’ll be that much closer to having your financial house in order.
1. Add saving to your monthly expenses. Typically, we pay expenses first and see what’s left over for saving. That’s a bad strategy only because we tend to just increase our style of living and expenses if there’s money left over. It works better to make saving a top-priority set-aside after basic necessities are covered. Even if you start with earmarking just $20. The amount isn’t as important as creating the habit. You can increase from there once the habit is in place. But the truth is, it’s still difficult to do without automating, so consider setting up an automatic transfer each month to your saving or investment account and working your other expenses around it. Then try to increase that savings figure every six months.
2. Know your spending budget. Many people wing it with spending, figuring that when it’s time to pay expenses, they’ll come up with the money from somewhere. That leads to debt, and 2017 is a great time to get allergic to debt. If you don’t know what your post-expenses cash flow is, you have no idea if you’re spending more than you earn, and that’s not sustainable. Make an appointment with yourself to do this. An hour (or two half-hour slots, or 3 twenty-minute slots) may be enough. Add up your monthly expenses by taking the average from the last two to three months. Make sure you pad it a little bit for those ubiquitous unexpected expenses. Then subtract that amount from your monthly income (your monthly expenses should already include savings; see #1). So the balance should be your discretionary spending amount. Even better is if you can put a perentage of your spending budget toward saving/investing as well. Even if it’s 1%. (Read more about my favorite 50/30/20 budgeting system here).
3. Opt into your retirement plan at work or start one. If you haven’t already, think of signing on today. If your employer doesn’t offer a plan, and you’re earning money, consider opening an IRA account and make it a goal to fund it to the max this year. These are tax advantaged accounts, meaning if you meet the qualifications, your money grows tax-deferred (or grows tax free after putting in taxed dollars in the case of a Roth IRA). Don’t pass that up. If it’s automated, you can set it and forget it as it grows for you.
4. Do you have a signed will? If you’re married, does your spouse also have one? If not, take time out and get a will done now, especially if you also have children. In which case, you’d need guardianship papers drawn up and signed also. Think of your peace of mind. Quick fix for the wills: Suze Orman’s Must Have Documents Kit.
5. Do a beneficiary check. Make sure the proper beneficiaries are listed on your wills/estate documents and life insurance policies; make sure all personal banking, investment and retirement accounts plus employer-sponsored accounts have the proper beneficiaries listed.
6. Are your financial documents organized? Just getting and feeling organized will make you feel better about your finances. It can be as simple as having a manila file folder for each type of document, labeling it and keeping all of the folders in a safe place. These include Social Security card and birth certificate; credit reports; tax returns; deeds, titles, surveys; banking and investment documents; loan documents (mortgage, home equity loan, auto loans, personal loans); paystubs, employee benefits statements and plan info; Social Security statement; Wills, trusts, living will, powers of attorney, estate and guardianship documents; insurance papers (including auto, homeowners, renters, life insurance, disability insurance, and any other insurance you maintain). To help you get started, here are Dave Ramsey’s tips for organizing your important documents. Also, check out this worksheet from Oprah.com.
Do you have tried-and-true tips for a pre-new year financial health check? If so, we’d love to hear about them in the comments below.
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