How to put your financial house in order.
Just like your home, your finances need to be freshened up regularly. If it's been a while since you put your financial house in order, here's how to clean up your finances.
1. Check your credit score. When was the last time you checked your score? Get a free report annually from each of the three major credit bureaus (Equifax, Experian and TransUnion) by visiting www.annualcreditreport.com.
2. Reduce debt. Too much debt can clutter your financial house. Prioritize and pay down high interest debt first. As you retire debts, apply the debt payment to the next highest rate debt until you have retired all outstanding debt. Get motivated by imagining the relief of being debt-free.
3. Set up a savings account. Does your checking account double as your savings account? That makes it too easy to spend money that's supposed to be for long-term goals. Open a savings account, and set up automatic transfers to help you reach your goals faster.
4. Update your budget. As your financial situation changes, so should your budget. Review your expenditures and check your progress on saving for long-term goals. See if you can increase savings by trimming spending.
5. Review your retirement plan. Does your current retirement plan reflect your future retirement needs? Review your investment strategy to ensure you are on track to meet your goals. Be sure to align your investments with your risk tolerance. This becomes increasingly important as you approach retirement. Talk to a retirement expert if you need help.
6. Get adequate insurance. Ensure your car, home, life and health insurance are updated to reflect life changes (e.g., a new baby). Make sure your coverage still meets your needs and your beneficiary designations are current. Disability insurance, which can provide partial income replacement if an accident or poor health strikes, should be considered. Before buying insurance, compare rates at einsurance.com, or get quotes from several companies. Check on the availability of insurance through your employer as well. Click here to find out about insurance coverage available from Bank of America.
7. Create a will. If you die without a will, your assets may not pass in line with your wishes and your estate may have to spend more to settle your affairs, cutting into your loved ones' inheritances. If you already have a will or other estate planning documents, review them whenever your financial or family situation changes. A qualified estate-planning lawyer or available software can help make this less difficult than you might think.
8. Shred old documents. During spring-cleaning, you’ll probably come across old records you no longer need for either tax or insurance purposes. (Hold on to past tax returns, as well as receipts and documents to support those returns or any future insurance claims.) Identity theft can seriously damage your credit score, so shred documents with personal information before disposing of them.
9. Hire a financial advisor. Know when to seek help from an expert. A good financial advisor gives you time to make decisions, answers questions and explains fees in a way you understand, returns calls promptly, is meticulous about paperwork, and never pressures you to do anything you don't want.
10. Rethink bad investments. Review all of your investments to identify those that are underperforming. Are you holding on to them because you hope one day they'll bounce back? You may want to reevaluate the investments that aren't helping you reach your goals.
Once you've taken the effort to clean up your finances, set a date in three months' time for another review. You'll benefit from regular reminders to keep on track, and enjoy financial peace of mind.
What's next? Create your own savings plan