April is Financial Literacy Month, so what better time to take stock of your accounts? Let us help you get started with some inspiration to improve your financial health.
Spring Clean Your Finances
Financial paperwork can pile up. Here’s how to tackle a bin full of paper clutter and organize your financial records:
- Make separate piles for each category of document: tax papers, bills, unopened mail, retirement account records, and so on.
- Designate a box, drawer, or cabinet where you’ll keep records.
- Label a folder for each kind of document. Depending on your situation, you may have one folder for “Credit Cards” or you might need separate folders for each card. The same applies for loans, insurance, and other categories.
- Go through each pile and sort into Action Items (things to pay or read now), File, and Shred.
- When new documents come in, set up a paperwork command center so you have a place to process them into your filing system. Better yet, switch to e-statements instead of paper whenever possible, to make it simpler to store and search for documents.
You should also brush up on how long to save documents:
- Shred right away: Most bills, credit card statements, receipts
- Keep 1 year: Pay stubs, so you have records if your W-2 or other tax forms don’t match.
- Keep 7 years: Any tax-related documents, including credit card statements that show deductible purchases
- Keep longer: File loan information at least until the loan is paid in full. Some experts recommend filing this information indefinitely, so you have proof if someone ever disputes that you paid the balance.
Plan for a Healthy Credit Score
Equifax, Experian, and TransUnion all track credit report information. Under the Fair Credit Reporting Act, you’re entitled to a free credit report from the three major credit bureaus once per year so you can monitor your credit. Have you taken advantage of yours this year? However, the law does not require the credit reporting companies to provide a free credit score. The Consumer Financial Protection Bureau’s website has additional information on credit scores.
Checking your credit report gives you a chance to make sure the information on your report is accurate and up to date, this underlying information is the basis of your credit score. Addressing errors on your report can help guard against identity theft and fraud. Making sure your report is correct can also benefit you before you purchase insurance or shop for a car or house.
Review Your Rainy Day Fund
One in three households encountered a major unplanned expense in the last year, according to Bankrate. Only 39% covered the funds with savings, and 19% said they’d have to put an unexpected $1,000 bill on a credit card.
Aiming for at least $1,000-$2,000 is a good start to protect against a one-time setback. Ideally, you should try to save 3-6 months’ worth of living expenses so you’re prepared for a more substantial hurdle, like job loss or illness. A few ideas to get started on emergency savings include:
- Automate savings so it’s a no-brainer to pay yourself first. You can sign up through your employer to take funds from your paycheck directly into savings, or set up a weekly or monthly transfer with your bank. Start small, and if you don’t miss the funds, think bigger and increase the amount!
- Write (and follow) a household budget, and track spending
- Have a night in instead of a night out with your partner or friends
- Sell some possessions you no longer use
- Rent out your car or space in your home
- Request extra hours at work
Set Goals for Different Timeframes
Short-term, mid-range, and long-term financial goals are all important. Short-term goals take no more than 1-2 years to complete, and may include items like saving for a vacation or paying off a credit card balance. Medium-term goals take about 5-10 years, such as saving for a down payment on a house or paying off a student loan. Long-term goals, like saving for retirement or your child’s college fund, may be many years away, but starting early is still important.
The question is how to make space in the budget for all three, especially if finances are tight:
- Decide which goals are top priority.
- Assign goals a clear figure so you know when they’re complete (e.g., $8,000 for a used car in five years).
- Break down each goal amount by month so you know how much should come out of your budget.
- If you’re not making enough to cover all your goals, you may need to triage. You might put off buying a house for an extra two years to give yourself a better chance at getting out of debt or contribute a lower percentage of your paycheck to your retirement fund.
Secure Retirement Savings
Are you on track for retirement? Some financial experts recommend measuring savings in terms of your salary. You should add roughly the equivalent of a year’s salary to your combined retirement accounts every five years, starting at age 30. So by 35, you’d have twice your annual salary saved, three times by age 40, and so on. By around age 65-67, when you plan to retire, you’d want to have eight times your annual salary saved.
If you’re behind, don’t panic, especially if you’re near the beginning of your career. You can still take steps toward a secure retirement:
- Talk to an expert. A financial advisor or other professional can assess your debt and assets and discuss a personalized plan.
- Get free retirement money. Contribute enough to claim any employer match in your 401(k).
- Put raises toward retirement, instead of increasing your daily budget.
- Open an IRA. Most people can contribute $5,500 per year to IRA accounts (more if you meet age requirements). This can be a short-term goal that bulks up your long-term goal.
Tips for Goal Success
Whatever your financial goals are, making an official commitment can help strengthen your resolve to stick to the plan:
- Write plans down. You can hold yourself accountable and log your progress.
- Find a buddy. Friends in the same boat can be a source of support. You can cheer each other on and share tips and struggles.
- Ask a professional. Read expert advice or reach out to a financial professional who can offer advice tailored to your situation. Pros probably know strategies you’ve never thought of.
- Designate a CFO of the household. This person takes the lead on reviewing finances and checking progress. Spouses or partners make decisions together, but it can help to know who will kick off the conversation.
- Learn more about how to get out of debt and start building wealth!