You can starting checking off your financial To-Do list today! (Photo: Shutterstock)
If you procrastinate managing your finances, you are not alone! For many of us getting our finances in order is a daunting task, one that is constantly hanging over our heads. It’s something we all know is crucial and plan to do it, yet for one reason or another we put it off. Maybe it’s because the decisions around finances are so important, we wait until we can do it perfectly. Or we look at our ‘finances’ as one singular item that must be done all at once, rather than separate items we can knock off one by one. I recommend ultimately meeting with a financial advisor and estate attorney to put together a comprehensive plan; but in the meantime, set aside two hours and fo llow the below steps to ensure that you and your family are protected now.
Will: It’s one of the most important things you can do, especially if you have children. However, it’s the one our clients most often put off, and for obvious reason; no one wants to think about their death. If you are not ready to meet with an estate attorney, an easy and inexpensive way to create an enforceable will is through LegalZoom. This site walks you through the steps and asks for information such as the executor of your will, guardian of your children and beneficiaries of your property. Also through LegalZoom you can create a living will to include your advance health directives (your health care wishes in the event that you are unable to communicate or make health care decisions). More on advance health directives here. Then all you have to do is sign (along with witnesses) and store it in a safe spot. Your time commitment: Online completion = 15 minutes.
Life insurance: Here is another critical financial task that is often put off for many reasons; it’s hard to be sure how much to get, what type and where to start. When it comes to insurance, we often recommend SelectQuote to our clients. All you have to do is fill out an online form. They simplify the process and do all the work for you by finding the best deals from top rated providers. They will set up a quick medical evaluation in your home, and then the insurance provider you chose will provide final rates (rates can take a few weeks). SelectQuote only provides term insurance, which is what we almost always recommend to clients. Term is best if you want temporary and affordable insurance to protect your children and spouse during the years they are dependent on you. For example when a client has a baby, we recommend 20 year term insurance. This will protect the child until they are out of school and can be self-sufficient. As far as the amou nt, a general rule of thumb is 5-10x your yearly income. Even if you’re not sure exactly how much you need, just get started with enough to provide some protection and peace of mind for your family. You can always add more insurance later. Your time commitment: Online form, phone consultation and medical exam = 45 minutes
Retirement: If you have not started contributing to your retirement account, the most important step is to just get started. Even if you can’t add much now, the earlier you start the longer you have for compounding interest to earn money for you! If it’s an employer matched plan make sure you are at least putting in the maximum amount your employer matches; that’s free money. To get started, meet with your HR manager to help determine how much to contribute (or just ask for instructions – everything can be set up online). This contribution will be a % of your salary and set up as an automated payment. The next step is to in vest those funds. One option is to invest in a target date fund. These are popular because of their simplicity; the fund is diversified across a wide range of asset classes. The fund becomes more conservative as you get closer to your ‘target date’ of retirement. Many employers have a target date fund set up as the investment default for their employee plans. But again, the most important step is to just get started. Your time commitment: Setting up contributions and choosing investments online = 20 minutes.
Emergency fund: You should have money set aside that will cover 3-6 months of expenses. This should be in a savings account or money market fund that earns interest (although it won’t be much). Decide how much you can put away each month and automate the monthly transfer. Then it’s done, and you don’t need to think about it again. Your time commitment: Setting up automated transfer to your savings account = 5 minutes.
Education: 529s are a tax a dvantaged way to save for your child’s education tuition. First step is to chose what plan to use. Most states allow you to deduct your contributions (on state income tax return, up to a limit). Savingforcollege.com is a great resource; it provides a US map where you can click on your state and go directly to that state’s 529 plan. If your state doesn’t provide tax advantaged plans, visit Vanguard or T Rowe Price for other top rated options. Next step is to choose your investments. Many plans offer professionally managed age-based options, a great choice similar to how the target date funds work in retirement accounts. Finally choose how much you want to contribute, and how often. You can always increase your deposits. Your time commitment: Enrolling and setting up your automated deposit = 30 minutes.
Your total time commitment to complete these five critically important financial tasks: 1 hour and 55 minutes! That’s how long it takes to w atch a movie on Netflix. So tonight, skip the movie and run through this list instead. It will take an enormous weight off your shoulders, you’ll provide protection for your family, and you’ve already seen Ghostbusters 20x anyway (or at least I have). Good luck!