Money & Career
5 Steps to Better Financial Health
2/4/2016 2:14:09 PM

Budgeting, saving and investing, oh my. Where to begin?

Start with your goals and objectives. Do you want to reduce debt, pay less taxes, save more for retirement or simply understand your resources and debts? If you are married, discuss your goals with your spouse and listen to their hopes and concerns. Once you have some ideas, then take these steps.

Step #1: Make a list of all your resources, debt and insurance including their value and/or cost

Gather all your statements including your tax returns, payroll statements, 401k statement, investment account statements, mortgage statement and loans, credit card statements, as well as auto, homeowners and life insurance. Make a list and discuss what’s mine, yours and ours.

Step #2: Budget for your financial goals—but also for the unexpected

Prepare a budget that includes all your expenses. Many of us pay our bills online through our bank accounts or by credit card so gather or download those statements for the past 12 months. And don’t forget to look at that payroll statement again. These will show spending on benefits such as life insurance and retirement contributions. Use those statements to objectively review your ongoing monthly and annual costs as well as one-time expenses such a vacations and large purchases.

· Do you have enough in your emergency savings? If possible, you should have at least six months of income available in savings should you leave your job.

· Is there room in you budget to increase retirement contributions? Ideally you should be making a contribution large enough to get your employer’s maximum matching contribution. Increase that contribution as your wages increase.

· Do you have a high deductible health plan? Did you know that you can contribute to a tax deductible health savings account? You can pay your health care deductible with pretax dollars which, in turn, saves money on health care expenses.

· Have you reviewed your insurance? Our insurance needs change as our lives change. A life insurance plan at work may not be enough. You may want to consider a plan that doesn’t depend on your employment. The same is true to disability insurance. A review of your auto or homeowner’s insurance may reveal gaps in your coverage.

Couples, especially newly married couples who work, may want to segregate costs into joint and individual expenses. Rent, insurance, food and pets might be joint expenses but nail appointments and Xbox games may not be. Talk about contributing to a joint account for joint expenses in proportion to your income. For example, Jim earns twice as much as Joan so he contributes $1,000 and she contributes $500 towards their $1,500 of joint expenses. Keep your own individual account and your own credit card for individual expenses.

Step #3 Take a Look at Your Credit

Many bank and credit card issuers now offer scores but you also need to review your report for errors. Download yours by logging onto

Do you know what goes into a credit score? Your payment history is important but so are the amount you owe, the length of your credit history and the type of credit you use. For example, missing just one mortgage payment can set your score back over 100 points! Your score determines not only the interest you’ll pay on debt but could impact whether or not you’ll be hired.

If you are considering a home loan, car loan or even a job change, it’s time to get this score back into shape. The amount of credit used should be less than 30 percent of the amount of available credit (called the utilization rate). This will keep you score on track.

Last, a joint credit card might seem like a good idea but it is more likely not. If your spouse fails to pay, you are responsible and your credit is negatively impacted. If you ever divorce or if your spouse dies, the balance will be your responsibility in the eyes of the bank. Have your own card and add your spouse as an authorized signatory if needed. If one of you needs to build credit, start with a secured card at your bank to build a credit history.

Step #4 Review Your Investments

When was the last time you opened your investment or 401k statements? Are your investments in line with your tolerance for risk? Get educated about your investments and review your statements with your advisor. If you have an advisor, ask how he or she views 2016 and how your portfolio is positioned for that outcome. Ask how your investments protected and what are is the tax impact if you were to sell them. Also be sure to ask about fees and expenses.

Investing without an advisor, but need one? Ask friends and family for references. Research online.

Step #5 Prepare a Will (and Other Agreements)

You’ll be happier when you can look forward to your financial future with confidence and certainty. What would your financial future look like if you or your spouse was no longer alive to share that future, or your marriage ended in divorce?

Financial planning for these outcomes requires not only money know-how but legal smarts. Educate yourself about Louisiana laws regarding wills and marital agreements. Create a strategy with your spouse that works best for your unique financial goals as a couple and as an individual.

Just because you plan your financial future with these risks in mind doesn’t mean they will occur. It’s just smart financial planning. If divorce or an untimely death happens, you’ll be glad you planned ahead.

Start today.

Pam Friedman CFP, CDFA, is author of I Now Pronounce You Financially Fit: How to Protect Money in Marriage and Divorce.

Posted by: Pam Friedman | Submit comment | Tell a friend


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