Are your personal finances in tip top shape, or could they use some care and attention?
Maybe you want to retire early, move into a bigger home, take that dream vacation, build an emergency fund, or reduce your debt. There are numerous aspects to financial health. Ignore the health of your finances and risk exposure to increased debt, loss of assets and overall decrease in quality of life.
Monitor Credit & Debt
If you have accumulated debt that is getting out of hand, develop a payoff strategy and stick to your budget in order to pay down your debt. Pay balances in full each month. Make sure you are getting the best possible interest rates with low fees. The best approach is to save the money yourself and pay cash for a purchase. Monitor your credit scores and clear up discrepancies in a timely fashion. Credit scores are essential, from obtaining employment to securing a mortgage at the best interest rate.
Pay Your Taxes
Avoid insufficient income tax withholding. Review your withholding elections and update when necessary. For dual income households it is often necessary to complete the W-4’s supplemental schedule to calculate additional withholding. For the self-employed, consider quarterly estimated tax payments. The IRS says you must pay 90% of your expected current year tax, or 100%-110% of prior year tax either through payroll withholding or quarterly
estimates to avoid additional penalties and interest. Consider using a professional tax preparer, as tax laws become increasingly complex.
Budget Spending & Saving
A budget is a core element in your personal finances. This does not have to be anything complex. The important thing is to establish a system that works for you. Monitor your spending habits for a month or so then set your monthly targets. Take a hard look at spending to see if there are things you can cut back on. Housing costs are one of your biggest monthly expenses. You should strive for them to less than 28% of your gross monthly income. A good rule of thumb to strive for is 50/30/20; 50% of spending should be needs, 30% for wants, and 20% for savings. Work toward building an emergency stash with a goal balance that would cover 3–6 months of expenses.
Plan for the Future
Take advantage of the retirement saving vehicles available to you. IRA’s, 401(k)’s and other Employer-Sponsored Plans are ideal ways to save income tax as well as save. If you are an employee, make sure to maximize any contributions to obtain full benefit of any company matching programs. Avoid using retirement savings for anything other than your retirement.
Start saving early and you will be better off when the time comes for those little ones to start school. There are numerous ways to save for college that have tax saving advantages. Be realistic about what you can provide for your child’s education. It is more important to have proper retirement savings than paying for an expensive school. Remember, you can’t borrow money to pay for retirement, but your children can borrow money for education if it becomes necessary.
Establish an Estate Plan
Everyone should have, at the very least, these legal documents; Durable POA for health care and financial decisions in the event you are unable to make them. It is also a good idea to have a Will. Always review your plan when life events occur, such as marriage, employment changes, births, deaths, divorces and illness. If you have assets that in total value are greater than the estate tax exemption (currently $5 million) consult with specialists to create strategies to reduce potential estate tax imposed on your assets when you pass away.
Financial fitness is a life long journey not a destination. The first step is to know you are not alone and that there are numerous resources to help you on your way. Seek advice from a qualified professional. Get free finance tips, calculators and savings ideas at www.360financialliteracy.org and www.feedthepig.org. Make your finances a priority – there is no better time to start than today!