You’ve heard it before and you’ll hear it again….it’s tax season.
If you’re wondering where you’re headed financially, tax season is the perfect time to effectively plan your trip. You wouldn’t begin your family vacation without a roadmap (or at least your GPS system), so why would you neglect to map out your financial journey?
“If you already have a map, that’s great. But it’s always a good idea to take a break and review it to make sure you’re still going in the right direction,” said Cynthia Tidwell, President/CEO of Royal Neighbors of America, one of the largest women-led life insurers in the nation. “If you don’t have one, start creating it today.”
Ms. Tidwell, who was featured in Business Insider for her career advice along with 24 other “super-successful” people, offers the following tips to help you navigate your financial journey:
Set your goals. Identify your financial goals and be very specific based on the needs of your current situation. These may include saving for a down payment on a home, buying a new car, taking the family to Disneyland, sending your children to college, paying off credit card debt, or planning for a comfortable retirement.
Break each financial goal down into several short-term (less than one year), medium-term (one to three years), and long-term (five years or more) goals. This will help prevent you from becoming overwhelmed when you face obstacles in the road.
Evaluate the changes in your life. Do you plan to relocate, get a different job, welcome a new child into the family? Depending on your situation, you may need to modify your budget, your spending, your savings, or your investments.
Check your credit. With identity theft on the rise, check your credit at least once a year to ensure its accuracy. Go online to www.annualcreditreport.com for information about obtaining a free annual credit report. If you see something wrong, correct it immediately!
Think about your debt burden. Is it manageable? If your credit card debt has grown since last year, or you’re making only the minimum payment or are late with payments, you most likely are living beyond your means. Make paying off that debt a high priority!
Review (or establish) your retirement goals. Many retirees are postponing their retirement due to financial or economic concerns, but you still need to plan. For example, decide where you want to live in retirement and how you want to spend your time. How are you funding this special time of your life? If you have a 401(k) plan through your employer, review it and re-evaluate the investments to ensure they are performing appropriately for your age and retirement strategy.
Protect your assets. Your greatest asset is your income-earning ability. Do you have long-term disability insurance? Also, review your homeowner’s or renter’s, health, and car insurance. Are you covered?
Do others depend on you? If so, life insurance is very important. Life insurance is a gift you give your family. It provides a death benefit that in most cases is free from income tax to your beneficiary.
If you already have life insurance, be sure you have enough and that the beneficiary information is correct. Financial professionals suggest that a person should have an average of seven to 10 times her/his annual salary in life insurance to serve as replacement income for the family. While that sounds like quite a bit, after a death, day-to-day expenses add up and new expenses are created. Also, funds may be needed to pay off a home mortgage or pay for college. Check out how much insurance you may need.
Prepare for the unexpected. Do you have an emergency fund? It is suggested that you save three to six months’ worth of living expenses in stable, low-risk accounts where money is easily accessible without excessive penalties. However, don’t make the funds too easy to reach---no ATM cards allowed!
If you don’t have an emergency fund, start one with a goal you can live with, maybe 5 percent of your paycheck. Pay yourself first by saving through automatic payroll deduction. Skip one big expense this year and put that money in your emergency account.
Review and update your will and powers of attorney. This is another gift you give your family. It is important that your wishes are known so your loved ones don’t have the added stress of making decisions that could have been made at an earlier time.
While you may find it easier to put off thinking about your financial health, a financial roadmap, reviewed at regular intervals, will help ensure a safe, exciting journey with the time and resources to enjoy every minute.