4 Financial Steps You Can Take on Your Own

There are some components that go into a comprehensive financial plan that require the help of a certified financial planner, an insurance professional or an estate attorney. However, there are a few items that are part of a financial plan that you can do on your own.

1. IRA Beneficiary Information

Make sure your IRA beneficiary information is up to date. Usually it is impossible to open an IRA account without designating a beneficiary because it is part of the account opening process. However, a lot of times this document is forgotten over the years. As a rule of thumb, it is recommended to check your financial documents once a year to see if everything is still up to date.

In case of any life changing events –  divorce, death in the family, retirement, an inheritance, disability, the arrival of a newborn baby, etc. – it is imperative that you immediately check all your documents to see what needs to be updated. For example, here is one consequence of not updating your important financial documents: a couple gets divorced and the husband never updated his beneficiary information. Once remarried, the husband dies and the wife from the first marriage inherits the IRA account because the beneficiary information was never updated. This will happen regardless of whether or not a will is updated. (For more, see: The Basics of Financial Responsibility.)

2. Liability or Umbrella insurance

Unless you are bedridden for the rest of your life and never receive any visitors, it is recommended that you purchase umbrella insurance. The two most common reasons that people have umbrella insurance is because they own a house/apartment or a car. 

You should purchase enough insurance so that if someone sued you for hitting them with your car or for getting injured on your property, you would be properly covered. At a minimum, purchase coverage for $1 million to $3 million. If you are unsure of how much coverage you have, check your car insurance and home owner’s policy, or call your insurance agent directly. If you end up not having enough coverage, it’s fairly inexpensive to add an additional $1 million to $2 million of coverage.

3. Social Security Benefits

The Social Security Administration has stopped sending you a yearly report about your benefits. If you have not done so yet, open an account with the Social Security Administration. Once you are logged in, familiarize yourself with what your current benefits are and what they will be by the time you retire. It will also give you information on potential disability benefits for you and your spouse.

Knowing and understanding all this information will give you a better picture for any retirement calculations or projections. In addition to that, please make sure that your income history is shown correctly, because any future Social Security payments will depend on your earned income history. (For more, see: Five Rules to Improve Your Financial Health.)

4. Budgeting

Budgeting: no other word has brought more fear and paralysis to the financial planning process. At the same time, budgeting is important to help you make sure you’re on the right path towards a successful retirement.

For a month or two, account for every single dollar that you spend – and I mean every single dollar. Either write it down in an old-fashioned pocket calendar or use one of the budgeting apps on your phone. Live your life as you did in the previous months and do not add up any numbers as you go along. At the end of the month add up all the categories (food, drinks, entertainment, snacks, Starbucks, etc.). There will be a few numbers that will not be acceptable to you.

Now you can make some changes and bring some of these dollar amounts to more acceptable levels. Write down the dollar amounts that you saved, and then calculate that amount by 12 to see how much money you would have saved in a year. Then take that number and hypothetically invest that amount with a hypothetical investment return of about 6% each year for the next 10, 20, or amount of years until you turn 65, and see how much money that would accumulate to. Usually that number is a good motivation to keep the budgeting in place.

Today we live in a world that constantly demands more from us and too often certain things are simply overlooked or forgotten. Hopefully this will act as a little reminder to slow down and make sure that some of your basic financial items are checked as they could potentially have big consequences otherwise. (For more from this author, see: 4 Important Steps to Protect Your Sudden Wealth.)

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