10 Financial Checklist Questions

Cindy Kelly Uncategorized Leave a Comment

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Earlier this week, I spoke to a couple of callers to our Financial Helpline. One was a woman who had just inherited some money and wasn’t sure what to do with it and the other was a man who wanted a complete “financial checkup.” While seemingly very different questions, both involved looking for vulnerabilities or opportunities in their financial situations. Want to do the same thing? Here are some questions to ask yourself:

1) Are you properly insured? Health insurance is now legally required but other forms of insurance may be just as or even more important to you and your family’s financial security. Check your property and casualty and disability insurance coverage. If you have dependents, make sure you have enough life insurance. Finally, if you have between $200k-$3 million in assets other than your home and personal possessions, consider long term care insurance. You may want to put off buying insurance but you never know when you might need it so get any coverage you need now.

2) Have you done any estate planning? The same is true for estate planning. Even if you don’t think you have an “estate,” just about everyone needs at least the basic documents like a will, advance health care directive, power of attorney, and beneficiary designations. If you’re concerned about the time, cost, and lack of privacy involved with probate, talk to an estate planning attorney about possibly drafting a trust as well.

3) Do you have enough savings to cover at least 3-6 months’ worth of necessary expenses? Without an adequate emergency fund, you could find yourself falling into debt due to unexpected expenses or even worse, facing eviction or foreclosure if you’re between jobs and having trouble paying your rent or mortgage. If you’re starting from scratch, you can aim for at least a $1k starter emergency fund and build from there.

4) Are you maxing the match in your employer’s retirement plan? If not, you’re leaving free money on the table. After all, where else are you going to get a 100% or 50% guaranteed return on your money?

5) Do you have any debt with interest rates over 4-6%? If so, you can probably save more in interest by paying that debt down then you would earn by investing any savings you have. You can also use this Debt Blaster calculator to see how quickly you can become debt-free and how much interest you can save by putting extra payments towards your highest interest debt.

On the other hand, you’re likely better off investing money than paying extra towards debt with interest rates less than 4-6%. If your debt is between 4-6%, your decision depends on how you personally feel about debt vs investing. More conservative investors may prefer the guaranteed “return” of paying down the debt while more aggressive investors may prefer to invest for higher returns.

6) Do you own a home? If not, buying a home can reduce your long term housing costs and provide you with a growing asset.

7) Are your investments properly diversified? You can look at these model portfolios for guidelines on how to invest based on your time frame and risk tolerance. You can also use certain “robo-advisors” like Charles Schwab’s Intelligent Portfolios and FutureAdvisor for free advice.

8) Are you saving enough for retirement? If you’re not sure, run a retirement calculator and see if you’re on track. If you need to save more but can’t afford to right now, see if your employer’s plan provides you with a  contribution rate escalator feature that automatically increases your contribution over time. Otherwise, you can gradually increase your contribution rate yourself each year.

9) Are you minimizing taxes on your investments? Your employer’s retirement plan, HSAs, IRAs and education accounts like 529 plans and Coverdell ESAs can provide you with tax-deferred or tax-free growth. If you have investments in taxable accounts, try to use them for more tax-efficient investments like index funds, individual stocks, and tax-free municipal bonds and consider harvesting losses in your taxable account to offset other taxes.

10) What do you like to do for fun? If you answered yes to all of the above questions, you’re in a good place. Go enjoy your summer!

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