1. Do you know where your money is?

Often, we have a general idea of our finances. We use what I call ‘sort of math.’ I sort of have an idea; I think I have around, etc. With so much email and regular mail being received daily, it is easy to overlook or save for later, statements and letters from your bank, financial institution, advisor, broker, insurance agent etc. Knowing not only how much you have but where all that money is kept and managed is an important first step in feeling less overwhelmed.

2. Stay Organized, especially when it comes to your finances

What do we do once we have all our statements in front of us? Now it is time to organize time so we can track them and stay on top of things. There are websites, apps and even spreadsheet programs that will do a pretty good job of organizing and tracking your expenses. You can use Excel, Google Sheets, Everydollar, You need a Budget or my favorite Mint. Mint, for example links to your bank account allowing you to create specific categories that you can organize your expenses into. This allows to track categories over time. For example, how much coffee do you drink monthly at Starbucks? Knowing this information can give you a leg up on switching behaviors and help you to stick to the budget.

3. Have a budget and stick to it

Now that you know where your money is, and you have it organized all in one place it is time to make a budget. Budgets can be scary, but they can also be your best friend. They serve as a guide. When I work with clients the first session we dedicate to the budget. The budget is the foundation upon which your financial house is built. It shows you where your money is going and gives you not only the opportunity to make changes but to be intentional. Using the tools above like Mint, which also has an app allows you to always have access to your budget. This keeps you on target. Being intentional with your money assures you that nothing slips through the cracks, meaning all your money has an assignment and is working for you.

Mint App: Apple Store Google Play

4. Make a plan – know what you want your money to do for you

This one is fun to do. This is where you get to dream and create goals. After all isn’t the point of working hard and saving the chance to enjoy yourself. Having dreams and goals gives your financial life a purpose. We can focus on the enjoyable things we want to do when we don’t have to worry about money. Most of the time when people decided they need to tackle their finances they are already fearful and highly likely in debt. This can help refocus your energy into something positive. This is always a fun session with clients. We think in terms of short term (1-3 years), mid-term (3-7 years) long term (7-15 years) and retirement goals. We plug in these goals into a chart and clients print them out, tacking them up in places they see every day as a constant reminder of why they are staying the course.

5. Have an Emergency Fund to cover unexpected expenses

Now the work begins. In Dave Ramey’s 7 Baby Steps process, Baby Step 1 is to save $1000 in an emergency/rainy day fund. This a great way to give yourself a little breathing room between you and disaster. If you have children and gaps in insurance coverages, you may want to consider raising that amount to $2000-$2500. This gives you an easily attainable 1st goal, providing you with some much-needed positive energy heading into the next part, paying off debt. Once we pay off your debt you will focus on building this into a 3-6 month emergency fund, which all the experts agree is a smart financial move.

6. Pay off Debt as fast as you can using the debt snowball method

There are a few schools of thought on paying down debt. Two of the more popular approaches are the Debt Snowball and Debt Avalanche. Let’s examine both starting with the Debt Avalanche. The Debt Avalanche approach is where you start by paying off your highest interest rate debt first, attacking it until it is paid off then rolling the minimum payment into the next debt. The Debt Snowball is slightly different in that you list all your debt from smallest to largest, ignoring interest rates, and attack the smallest until it is paid off, rolling the minimum payment into the next smallest. Having an eye on the debt payoff prize is the ultimate goal.

There are several calculators and spreadsheet programs that you can use to determine the length of time and money saved by doing either method. What the Debt Snowball method has that the others do not is the element of Quick Wins. Achieving mini wins, in this case a payoff of your smallest debt, you feel motivated to continue, more engaged in the process and more willing to continue. You can even use these free Debt Payoff coloring pages to make your progress

7. Protect yourself and your loved ones

Insurance provides you with an extra layer of protection while you are in the process of building wealth. Inevitably something will come along, and it will end up costing you more than your emergency fund can handle. This is where insurance will come in handy. Insurance simply shifts the risk from you to the insurance carrier. You pay a monthly or annual fee for that privilege. There are many types of insurance to consider including: medical, dental, life, disability, identity, auto, homeowners/renter’s, umbrella and even pet.

It is not enough to just have coverage you need to determine how much is the proper coverage. As your needs change your coverage may change as well. For example, when you are single you have a small or even no life insurance coverage. When you get married you have another person or persons to consider if there are children. In this case you would need to obtain or increase your coverage to provide more adequate protection. Going to a website like Zander Insurance allows you to explore the different types of insurance and obtain quotes.

8. Retirement – Not as far off you might think

This is something that everyone thinks about, everyone needs, and some people don’t do anything or not enough about. At some point in time, you are going to want to stop working. For all of us it’s our retirement balance that usually tells us when to stop working. If we have enough, we can stop, if not we keep going. Building on the other steps we covered we include retirement as a strategy. Being methodical and consistent with our retirement contributions allows for the potential of continued growth as well as being able to weather some fluctuations in the market.

Retirement is a long-term play. A marathon not a sprint. At least it should be. When you start investing early and often you take advantage of compound interest. Its money that makes money. How much you should set aside? Most experts and advisors suggest 15% of your take home pay should be put into retirement.  Let’s say your average take home pay is $45000 a year and never increases (which is a 0% possibility), you would invest $6750 a year or $562.50 a month into retirement. If I start at age 27 and retire at age 67 and the average annual growth is 8% (historically the S&P 500 has average 10-12%) I would have $1,963,693 in retirement, just under 2 Million Dollars! $270,000 of that was my contributions and the rest, $1,693,693 was the growth!

There are several types of accounts you put your retirement in. These include IRA’s and 401K’s. You have heard these terms before I suspect. Each one has 2 main choices: Traditional or Roth. A traditional IRA or 401k is a pretax investment, usually called a ‘tax deferred’ account. This means you are putting off paying the taxes on the amount you put in and paying them later when you withdraw the fund. These funds are then taxed at your current tax rate at time of withdrawal. A Roth IRA/401k is different. This account uses after tax funds meaning you do not get a tax break up front. Your savings is on the back end. The earnings in the account grow TAX FREE, meaning you won’t pay taxes on any capital gains or dividends that occur during the life of the account. This allows for a different strategy come retirement regarding income and taxes. Each of these accounts has contribution limits of currently $6000. If your 15% is more than these, you would work with your advisor to open several types of accounts.

When discussing retirement options, it is best to sit down with a qualified investment advisor. You want to look for someone who is a Fiduciary and Fee Based. This basically means that they put your needs first and are not trying to put you in products that generate the most commission to them.

Interview several before settling on a choice. Look for one that can teach you and inform you so you can be in the know, after all it is YOUR retirement.

Edward Jones Dave Ramsey SmartVestor Pro LPL Financial

9. Investing in yourself and your future

Like retirement investing you will need to define your goals. Short term vs long term. Depending on what your goals are you will develop a plan of attack to strategically reach them using nonretirement investing. Types of investing here can include mutual funds, real estate, your kids college funds and even in yourself in the form of self-improvement. Investing in yourself by taking a few classes that ultimately can increase your salary is a great investment to make. These types of investments are tax at capital gains rates once the funds have been invested for 1 year and 1 day. Before that and your withdrawals are taxed at your normal income tax rate.

10. Dot your I’s and cross your T’s – Documents everyone must have to make life simple

While this is last on the list it might be the most important one. That is because without this everything you have done, everything you have built could be extinguished upon your death. The need to good estate planning is vital. Not only is it crucial to make sure you have the proper documents signed, having them easily accessible as well as making sure the people you trust to carry them out are aware of your wishes is equally important. You will need several documents to ensure you have your estate plan in place. These include a will, a power of attorney, an advance directive, a letter of intent as well as other pieces of information such as copies of deeds, copies of life insurance plans and login information to online accounts such as your bank and creditors. This is about protecting your legacy.

Wills need to be update upon a move to a new state or whenever there is a major life event such as marriage/divorce/death of a spouse/birth of a child. A Power of Attorney or POA is arguably your most important document while you are alive. A will dictates how you want your assets divided upon death while a POA dictates what happens while you are alive. A Power of Attorney gives someone you name the power to act on your behalf in terms of financial and other types of transactions. If you become incapacitated your designee will then take over decision making capabilities for you. It is important to have this form ready well in advance of needing it and to inform the person you name so it doesn’t come as a surprise to them. I would also suggest sending a copy of the form to your bank/life insurance/financial advisor/etc ahead of time. It will save a lot of time when it goes into effect.

An advance directive is sometimes called a Health Care Power of Attorney. This allows someone to make medical decisions on your behalf. It is separate from a traditional Power of Attorney. You can name different people on each or the same, that is up to you.

Lastly is a letter of intent. While not an official legal document and slightly different than a will, it is a letter spelling out your intentions to your heirs. This is where you can spell out specific instructions regarding your funeral, burial, the contact information for your creditors or anyone that might owe you money, what to do with your social media accounts after you die, provide usernames and passwords, specific information on caring for pets and most importantly it is a place to put into words sentiments and messages for loved ones. This does not replace the will and again is not legally binding.

You can use an accredited estate planning attorney to draw up these forms for you or you can get started online at sites like Mama Bear Legal Forms or Legal Zoom.

So, there you have it, our personal finance checklist to help get your finances in order. But don’t worry if this seems like a lot of work – we can help. We are here to guide you through every step and make the process as easy as possible for you. Give us a call or email us today to set up an appointment and take the first steps on your journey to financial freedom!