With uncertainty lining many short-term financial forecasts during the Covid-19 quarantine period, it’s important to control the aspects of our finances that we still have control over.
We may be unable to control the economy or the stock market, but we can still maximize our time to ensure that we are taking a step in a positive direction with our money. If you are looking to increase your financial preparedness, below is a list of tasks that you should consider regardless of where you are financially today.
Challenge yourself to start at least one suggested task each week. At that rate, your finances will stay top-of-mind and you will be able to check all the boxes within a short two-month time period. You got this!
Know Your Numbers.
Take the time to calculate your net worth and gain a grasp of your cash flow. Net worth is the difference between what you own (your assets) and what you owe (your liabilities). Knowing this number helps you to establish a starting point. The goal is for this number to grow over time. This free worksheet can help.
As for cash flow, it’s difficult to know how much money you have available to put toward financial goals if you are unaware of how much you are earning vs. spending. If you currently earn more than you spend, congrats! The difference between these amounts should be what you have available to save and/or invest for your future.
If you are currently spending more than you are earning (after taxes), the difference will determine by how much more you continue to dig yourself into debt each month. Knowing your cash flow figure (even if it happens to be negative) is a good starting point to determine what changes you should consider to improve your finances over time.
Set and Refresh Financial Goals.
What do you want your life to look like in retirement? Are you planning to purchase a new home? Are you trying to pay off your debt? Regardless of the financial goals, it is difficult to know what to do today if you do not have a clear idea of where you are trying to go.
Take the time to dream big! Also think about today and what may or may not be practical for your specific situation. This free worksheet was developed as a resource to help with the goal-setting process. Click on the link if you are looking for a helpful way to gain more clarity of what you are working toward.
Once you set initial goals, be sure to review them regularly so they remain top-of-mind. In the event that you are in a relationship, share your goals with one another. Getting on the same page will help with accountability and buy-in on the actions needed to stay on-track.
Track Where Your Money is Going.
Are you living paycheck-to-paycheck regardless of income? Are you short on your savings goals? Increasing your understanding about where you are spending your hard-earned money can be empowering. The process will allow you to learn more about where your money is currently going so that you will be able to more effectively plan for a proper financial haircut (spending reduction).
If you are only interested in learning more about “how much” you are spending instead of the many small specifics, Wealth Driven Mindset has you covered. Download this free worksheet to track your spending from a 10,000 foot view. If you are in need of a more detailed look of where your money is going, this longer worksheet might be a better fit for you. It’s also free! This detailed process can be rather time intensive, but the exercise will no doubt be eye-opening and worth your time investment.
Many of our clients have been surprised to learn how much they spend on areas like dining out (especially before Covid-19). A few small reductions to dining out, an expensive coffee habit and/or any alternate discretionary area of spending can make the difference between getting on-track financially or continuing to fall behind.
Review Your Insurance Coverage.
When was the last time you looked at your insurance coverage? Really looked? What are you paying and what coverage is this providing? There’s a chance that you might be paying too much compared to what you really need. There’s also a chance that you might be under-insured. It’s important that you are properly covered in all areas based on your situation and preferences. There are several areas to consider: home/renters, auto, health, disability, life, liability/umbrella, etc.
We recommend that you reach out to two or three different insurance companies to price shop. Ask not only about price but strive to learn more about what you actually need for proper coverage and how it’s calculated.
Think also about life insurance coverage. If you or your partner were to pass away unexpectedly, would he/she be able to cover the adjusted living expenses? Consider cost reductions such as food and clothing and potential cost increases like changes to childcare. Consider your situation and whether it has changed? Marriage, children and other life events often change one’s outlook on life insurance.
Life insurance is personal—you may or may not opt to pay for the coverage. Regardless, it’s important to understand your options and the risks involved with the unexpected. Risk management is an important aspect of any strong financial foundation so taking the time to consider your options is critical to long-term financial success.
Establish/Update Estate Plans: Wills, Living Trusts, etc.
Taking the time to establish a will or living trust is one of the tasks that seems to continuously be pushed under the rug for the next rainy day. Commit to checking this box so that you can breathe easier knowing that your wishes are outlined, the correct documents are in-place and your loved ones have a plan in place.
If you have already established a will or trust, when was the last time it was reviewed and updated to reflect your current situation? Do your loved ones and trusted contacts know where it’s located? Communication with your trusted contacts is a critical step to estate planning. Take the time to inform them of its location.
If you are just getting started on your estate plans, talk with an Estate Attorney to gain an understanding of what documents are best suited for your specific situation. And…shop around! Be sure that the price and personality of the hired professional are a good fit before committing to any legal advice.
Talk About Money with Your Loved Ones.
Set time aside to talk with your partner about money and your finances. Where are you today? What are you working toward? It’s proven that couples that talk about money tend to be more productive with their finances. Consider scheduling a reoccurring date to stay on-track. If you think some structured questions will help with the conversation, this article will help get you started.
Lastly, don’t forget about talking with your kids! It’s important to start talking about money in the home as early as possible. We published an article about financial education from Birth-to-Thirty, which helps to highlight options to teach your kids about money, hard work, earning and opportunity cost at different ages.
If your kids are thinking about college, consider reviewing the impact of their decision before they commit to one specific school. The cost of higher education varies greatly depending on the institution (community college vs. university, in-state vs. out-of-state, private vs. public). It can be easy to justify all decisions, but we think that it’s extremely important for your future college grad to know the long-term impact of his/her student loan debt before signing on any dotted line.
Take a Step Forward Financially.
Regardless of where you are today and what you are working toward, taking the time to invest in your financial future will make an impact. Of all the financial tips, tricks and strategies available to you, time can be one of your biggest assets.
Don’t delay. Set a timeline and get started. Determine what task you want to knock out within the next week, and treat yourself once you do (with something small, of course)! Commit to completing these six suggestions to move your financial needle forward TODAY!
