What financial actions should you take in the next year to get better organized? There is so much you could do to make your financial affairs better, it can be overwhelming. That is the question I recently got from a subscriber. We have put together this basic calendar of major actions to take to improve your financial life. The calendar is not meant to be all encompassing, but includes the major steps you should take to better manage your money.
During 2021, we will have blog posts that go into many of these topics in greater detail. For other topics, check out the FinancialVerse MoneySavers blog and stay tuned for more valuable information.
This calendar does not include the time you should spend improving your financial literacy or managing the basics of your life such as paying your bills on time.
January: Take or Update Your Financial Inventory
The famous proverb says, “A journey of a thousand miles begins with a single step.” When it comes to your money, the proverb should read, “The journey to financial security begins by knowing where you stand today.” The financial planning process has two key end points:
Where you stand today
Where you want to be. To begin your financial journey you need to have a clear understanding of your starting point. This is done by taking what is called a financial inventory of your money matters. In some households taking the inventory may be the first time all parties understand the other’s assets, liabilities, debt service and credit profile. For others it will create a better shared awareness of all things money related.
Creating a financial inventory isn’t a difficult task, but it can be time consuming depending on how organized you are. I recommend setting aside a recurring block of time where you can gather information, documents and other pertinent information. In the process you may also find areas where you can streamline and simplify your finances. Take notes and make the changes later, otherwise you will split your efforts and double the time it takes to accomplish both tasks.
In your financial inventory, you will want to create a list and copies of all your financial information, including assets and debts, real estate holdings, titles, deeds, valuable property such as artwork or jewelry, insurance policies, retirement accounts, legal documents, such as wills and trusts, and contact information for important people involved in your finances, including your financial planner, accountant or lawyer.
February: Make or Update Your Annual Budget
One of the rules of the FinancialVerse is that you must keep track of what cash you earn, spend and save. You do this using a budget. A budget can range from a simple written list of your cash inflow and outflow items to the use of detailed and sophisticated computer apps. If you don’t already have a budget, I think it is a great idea to go through this exercise in an old-school way—with a pencil and paper. This will force you to see each item of income and expense and make clear what you are earning and spending. Once you have created this awareness, you can move to one of the available personal budgeting apps that are available for your home computer, smartphone, or tablet.
Available budgeting apps have pluses and minuses. Please do a search to find and read the technology reviews for each and determine which application is best for you. Some of these applications are available from the Apple and Android app stores, but others must be purchased directly from the company. Finding a budgeting application that best meets your needs will make the budgeting process much easier for you.
You need to know where you are on your money journey at all times. The only way to do that is to track your progress and measure success on a frequent basis. It takes time to get properly set up, but the ongoing benefits in planning and controlling your journey with money are substantial.
March: Get Ready for Tax Season
Get organized to avoid a last-minute rush to meet the tax-filing deadline in April. For the 2020 tax year you should look to file as early as you can. The IRS has communicated that it will take longer to process returns this year because of the pandemic. Take the time to gather receipts and any other documents you need to file your tax return. If you do your return yourself or use the services of a professional tax preparer being prepared is the best thing you can do. Lastly, if you have not done so already, revisit your current withholding taxes to make sure they are correct for 2021.
April: Focus on Finding Cash Savings
In our pandemic impacted world, we find ourselves looking for ways to save money on buying the things we need and want. Let’s face it, consumers are rethinking what they spend on every aspect of their household’s budget. The average American household spends about $63,000 after taxes according to the Bureau of Labor Statistics’ 2019 consumer spending report. Most households have many areas for savings.
If you need help in finding cash savings my new book, The FinancialVerse’s Guide to the Cash Savings Universe – 600 Practical Cash Savings Ideas, provides you with a plethora of ideas. This guide was created to provide, in one place, a compendium of the cash savings ideas that have been presented in our MoneySavers posts, FinancialVerse books and from my experience saving money. All ideas presented have been positioned for the pandemic and what it has done to lifestyles. We have organized the ideas by major topic to make it easier for you to find ways to save cash and to make our world a better place. Have fun finding ways to save your precious cash.
May: Build—or Boost—Your Emergency Fund
You can read the media headlines stating that the vast majority of families can’t come up with $400 to cover the cost of an unexpected bill. My belief is that you should have at least six months of cash expenses, including debt service, on hand to protect you against uncertainties. The uncertainties include unexpected medical bills, the loss of your job, family emergencies, and home or car repairs. You can’t rely on others for these needs; you have to prepare for them yourself. Overall, on a longer-term basis, I am an advocate of building an emergency fund that covers one year of expenses.
Building such an emergency fund does not happen overnight. If you haven’t started our fund already, you need to start out with small savings amounts and add to them as you can. My advice is everyone, even those at low-income levels, should work to have at least $10,000 on hand as a cushion against uncertainties. I can tell you from personal experience that these events do happen and you need to be prepared for them.
June: Evaluate The Cost of Banking and Your Debts
During June, take a look at all your bank savings accounts, transaction accounts and outstanding debt to see if you can reduce cash outlays by finding accounts with lower fees and rates. Look for a checking account, loans or high-yield savings account at an online bank, credit union or community bank, which tend to offer higher rates on savings and lower fees and rates on loans.
July: Perform a Deep Dive into Your Credit Reports
Pay close attention to your credit scores by performing a deep dive. The results of your financial decisions is closely monitored by the credit reporting agencies. The credit reporting agencies are the key gatekeeper for you to obtain the credit you need during your lifetime. The three main agencies are Equifax, Experian and TransUnion.
These agencies monitor key aspects of the credit relationships you establish. They mainly look at five key aspects of your actions, which include:
Your payment history
Credit utilization
Credit age – how long the relationships have been in place
Recent credit applications
Mix of credit
Each of the credit reporting agencies has extensive websites that describe their ratings and the process conducted to determine them. The websites will also direct you as to how to correct any information that is incorrect in the final reports. You must know your score and monitor it. You need to be vigilant at all times when it comes to your credit.
August: Check Up on Your Healthcare Benefits
August and September usually marks the start of enrollment season for most companies for the health insurance marketplace and for workplace health insurance plans. Take this opportunity to review your health insurance options to see if there is one that is more affordable but provides you with the coverage needed. Opting for a high-deductible plan with a low premium could make sense if you’re in good health.
September: Make Sure You Have Enough Life Insurance
September is Life Insurance Awareness Month. It’s a good time to make sure you have enough coverage to protect those who rely on you for financial support or to whom you plan to leave a legacy. Please read my book, Today’s Life Insurance, for a complete guide to the types of products available, how to calculate the protection you need and where to buy the products.
October: Review Beneficiaries on Your Financial Accounts
You need to review the beneficiaries you’ve named on financial accounts such as life insurance policies and retirement accounts at least once per year and more frequently if you have experienced a major life event such as getting married, divorced, had a new child, or received an inheritance. With your insurance accounts and assets you need to make sure the right people or entities will receive the proceeds from those accounts if something happens to you. Remember financial services companies will follow the written directions you have provided for beneficiaries and not what you thought you elected. Keeping this information up-to-date is very important.
November: Look to Lower Your Insurance Costs
Every year or two you should price shop your vehicle, homeowners, renters and liability insurance coverages to make sure you are paying the right amounts for the coverages you need. Your review needs to balance coverage needs with price and the quality of the company offering the coverage.
December: Evaluate Your Long-Term Savings
At least annually you need to take stock of your long-term savings and whether you are on track to reach your goals. There is no magic percentage of your income that you should be saving each month in order to become wealthy or live the life you want. Most financial experts recommend saving at least 10% of your pretax income. I believe you should target to save more than 10% because in some years you may not be able to save at all because of life events that may happen. Given today’s world of near zero interest rates and stock market volatility you will likely need to save more than ever to reach your financial goals.
There are a number of things you can do to make saving a lifelong habit. These include taking actions such as:
Opening up an online savings account and seeing if you can set automatic deposits from your checking account each month so you don't have to remember to transfer the money on your own.
Enrolling in your employer’s 401(k) plan and contributing enough to get the employer matching funds.
If you get a raise, earned more from your side gig than you planned or received an unexpected work bonus, commit to putting some of it away. While you may want to enjoy some of the extra money—which is perfectly ok—allocate a percentage of this “bonus money” toward your saving goals. I always made sure I took 10% of these windfalls and spent them on fun items and saved the remainder.
Savings are something you need to work towards and focus upon.
Summary
As with any major task, it is better to break things up into smaller actions you need to take. The same can be said about your money. Taking a little time each month will pay you great dividends. Also, once you are disciplined for one year the next becomes much easier and less time consuming.
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Thanks again for your interest in improving your financial knowledge!
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