Financial Success Checklist
Emergencies happen. Cars break down. Kids get sick. People lose jobs. Those are simple facts of life. It’s not a matter of if they happen; it’s a matter of when. Don’t act like a victim when life happens to you, but instead be prepared for when they do. Here’s our financial success checklist:
Build Your Emergency Fund.
Add a rainy day fund to you budget. If you don’t have one at all, start out with a goal of having $1,000 set aside, continuing on your spending freeze until you do. Then, after you’ve paid off consumer debt, increase that goal to having three months’ of living expenses set aside. When you’re completely debt-free and building up retirement savings as well, increase that goal to six months or more. In a tough economy like this one, especially if your job isn’t secure, you may want to save up to twelve months’ of living expenses.
Have a Solid Retirement Plan.
In today’s day and age, it isn’t enough to plan on Social Security covering your retirement expenses. The debt that the government took on in the recent financial bailouts will strain the federal budget for many years to come, making cutbacks in Social Security and Medicare even more likely. Your retirement security rests in your own hands now more than ever.
It’s never too late to start saving for retirement, but the sooner you can start putting money away the better off you’ll be. Use time and the potential of compound interest to your advantage and begin saving for retirement as early as you can.
Think about this: Let’s assume you can save $500 per month for retirement and will earn approximately 7%. If you start at age 35, you’ll end up with about $613,000 at age 65. If you start earlier, at age 25, you’ll end up with well over twice as much – around $1,320,000.
One of the easiest ways to save is to have money put into a 401(k), 403(b), or SEP account through your employer. Money is taken out of your salary before taxes, so the funds go into the account tax-deferred. Additionally, your employer will most likely match your contributions up to a certain percentage. Automatic deductions make it easy, so there’s really no reason not to take advantage of such plans. If your employer doesn’t offer a retirement program or you’d like to supplement what you already have, consider an IRA.
How much you’ll need in retirement largely depends on the lifestyle you wish to lead. As a general rule of thumb, financial experts recommend saving enough to replace at least 70 percent of your pre-retirement income for retirement. For a household with a $100,000 annual income, that would be $70,000. However, if you tend to ramp up activities like eating out and traveling during your retirement like so many couples do – you’ll need to plan on having more.
Create a Will.
According to Bankrate.com, 57% of Americans do not have a will even though most realize the importance of having one (76%). If you have a family, creating a will is the ultimate act in ensuring their security and long-term well being. Additionally, it saves surviving family members from having to make tough decisions on your behalf. If you don’t have a will, the state decides what happens to your house, finances, and even your children. In many cases, their decisions aren’t in line with what your wishes and desires would be.
Once you create a will, revisit it every few years to make sure it is up to date. Any major life changes such as births, deaths, and divorce are times when re-evaluating is a must. In most cases you won’t have to redraft the entire will but instead amend it with a codicil.
Avoid Insurance Blunders.
If you haven’t re-evaluated your insurance policies lately there could be some gaps in your coverage leaving you financially vulnerable. Births, deaths, homes rising in value can all be reasons to tweak your coverage – but you may simply want to shop around to see if you can lower your rates. Treat insurance as a necessity, not a luxury. Here are some tips to avoid common insurance blunders:
• Avoid Being Underinsured
Just because you already have insurance doesn’t mean it’s is the right insurance. If you have a policy through your employer, it may not be enough. A good rule of thumb for life insurance is to carry an amount 7 to 10 times your annual salary. Being underinsured can expose you to the same types of financial risks as not being insured at all. Do you have enough homeowner’s insurance to replace your home and its contents in the event of a disaster? Should you have supplemental flood or earthquake insurance?
• Get the Correct Amount of Life Insurance
Life insurance is designed to protect dependents if a breadwinner were to die. However, if you’re a stay at home parent your spouse would have to pay someone to replace what you do (take care of the kids while your spouse is at work, for example) if you were no longer around. Consider those needs when calculating how much insurance your family really needs. Who probably doesn’t need life insurance? Your kids. While losing a child is a tragedy, it’s not one that will put your family at financial risk.
• Disability Insurance
The U.S. Census Bureau estimates that nearly one in five Americans will become disabled for a year or more before age 65. Since it’s more likely that you’ll become disabled than die early, making sure you are financially protected if you lose your ability to work is extremely important. If you or your spouse doesn’t have it, look into getting it.
Make It Happen Assignment: Calculate the amount you will need for retirement. Here’s a great tool to use: How Much Will I Need To Save For Retirement? – Financial Calculators from CalcXML Are you on track? If not, make saving for retirement a part of your budget today. Do you have a will? If not, make a plan to get one in place. Are you properly insured? If not, plan to update your policies.