Take Control of Your Finances With Our Financial Planning Checklist

Let’s face it, your personal finances affect all aspects of your life. One way to create a solid financial foundation for yourself is to work through our financial planning checklist to help make sure you are covering all your bases. Understanding the details of your financial life can potentially help increase your peace of mind and offer you a greater sense of safety.

The following financial checklist is intended to provide general information to help you review your finances. We understand that everyone's situation is different, so the items in the checklist are not necessarily by priority or in a specific order.

1. Create a Budget for Yourself

Know the ebb and flow of your money. The first and perhaps most important step toward a healthy financial life is creating a budget to responsibly manage your income and expenses. Budgeting apps can help you track your income and expenses to avoid overspending.

Pay Yourself First

Remember to include how much you plan to save each month in your budget. The key to saving is to pay yourself first. Setting up automatic deposits to a savings or money market account can help you stay disciplined without having to think about it. Getting into the regular habit of saving a certain amount from every paycheck can help you efficiently accumulate the wealth you need to reach your short- and long-term financial goals.

2. Build an Emergency Fund

Are you financially prepared for a life emergency like an extended illness or loss of a job? Establishing an emergency fund ;can help you sleep better at night by giving you greater peace of mind about your future, knowing that you may have set aside enough money to help you financially survive an emergency or unexpected life event. Many financial professionals suggest saving three to six months’ worth of your fixed living expenses (e.g., rent/mortgage, food costs, gas, etc.) in an emergency fund. Keeping your emergency fund liquid, in a savings or money market account, is essential because you want to have immediate access to it if you suddenly need the money.

3. Manage Your Debt

Learning how to manage your short- and long-term debt, including your credit card debt and student loans, is essential to maintaining your financial health. Examples of short-term debt could include a three-year car loan or a relatively low credit card balance that you plan to pay off within 12 months. Long-term debt includes home mortgages and student loans, which you expect to pay off over a much longer period of time, like 30 years.

Pay Off Your High Interest Debt First

Interest rates have a significant impact on how you approach paying down both your short-term and long-term debt. Generally, you will be financially ahead by paying off your higher interest debt first. Let’s consider the following example:

^{*Simple annual interest calculated on the first year of the initial principal total of debt/loan.}

In this example, your highest interest (18%) is for credit card debt, costing you $1,800 in interest alone during the first year. Obviously, the quicker you pay down this credit card debt, the more interest you will avoid. If you pay only the minimum due each month, it could take you years to pay off this debt, including thousands of dollars in interest. Because of compounding interest on your credit card, you will end up paying additional interest that accrues on the unpaid interest. Paying off this high-interest debt first can prevent your short-term credit card debt from turning into a long-term debt burden. And even though your long-term debt is for larger amounts – $30,000 for student loans and a $200,000 mortgage – the interest rates you pay on these debts are lower, and the interest you pay on them is usually tax-deductible, which saves you even more money in the long run. 

Credit Card Debt

Many people get into trouble by charging too much on their credit cards, especially if they have a large unexpected expense, such as a major car repair or unforeseen medical problem, and don’t have an emergency fund to provide the extra money. Typically, it makes better financial sense to pay down your debt with the higher interest rates first, such as credit cards, and pay the minimum for other debt such as student or automobile loans. If you are paying 18% interest on multiple credit cards, you may want to consider a debt consolidation loan to lower your interest rate, reduce the money you are paying in interest and make just one monthly payment.

Student Loan Debt

Many young people today are feeling the burden of their student loan debt, which can lead to delays in making other major decisions — like getting married or buying a house. If you do have student loan debt, it’s important to stay on top of your monthly payments and create a monthly budget for yourself to meet all your financial obligations.

Car Loan Debt

Depending on where you live, having a car can be either a necessity, if you live in Los Angeles for instance, or more of a liability, like if you have a daily commute into Manhattan. For those who must have a car, it’s important to know how to navigate through your financing options.

So how long should you have a car loan? And what kind of lender — for example, bank, credit union or dealership — can offer you the best loan? This educational guide from the Consumer Financial Protection Bureau offers you pointers on how to take control of your car loan to help you compare offers and negotiate the best deal.⁵ If you have a significant amount of personal debt to pay off, you may want to weigh all your options. You may be able to save money by buying a used car or leasing a car rather than investing in a brand new car. Researching your loan options and getting pre-approved may also help reduce your stress and keep more money in the bank.

Mortgage Debt

With the 2008 U.S. housing crisis and our national economic recovery from the Great Recession (December 2007 to June 2009) in our rearview mirror, American consumers are enjoying a stronger economy allowing many to feel more confident about taking on a home mortgage. Assuming responsibility for a mortgage of more than $200,000, however, is a serious long-term financial commitment, one that requires thoughtful planning.

If you already have a mortgage, you may want to consider the possibility of refinancing, which could save you from paying a lot of money in interest over time — depending on current interest rates, your latest credit score and the type of mortgage you select. For more information, be sure to review the Consumer’s Guide to Mortgage Refinancings, published by the Federal Reserve.⁷ Because mortgages are long-term debt, you want to be ready to take on a large amount of debt for a long period of time. Continue to educate yourself about economic developments in the housing market and make necessary adjustments to your mortgage situation so you can help keep your financial life in balance.

4. Outline Your Financial Goals

Before you can realize your dreams, you first have to know what they are. Thinking through your financial goals and writing them down bring them one step closer to becoming reality. Your financial goals can fall into three different categories: short-term, intermediate and long-term.

Short-Term Goals

What are your immediate financial goals for the foreseeable future, within the next one to five years? For example, you may want to save money to buy a new car, splurge on a special family vacation or pursue a new sport like skiing, which involves special equipment and additional travel expenses.

Intermediate Goals

What are some things you want to accomplish within the next 10 years? These intermediate goals might include saving for a down payment on your first house, buying term life insurance after you have children or getting a graduate degree to further your career.

Long-Term Goals

Looking out even further on the horizon, where do you want to be financially in the next 20 or 30 years? You may be considering how to fund future life milestones such as downsizing your home after becoming empty nesters, retiring early, like when you reach age 60 rather than 67 or buying a second home to live in part of the year during retirement. Taking time to plot out your financial goals can help you see the larger picture of your financial life.

5. Put Your Family First

Many important life milestones, like buying your first home, getting married, starting a family, changing careers or entering retirement, are not only foreseeable but also require careful planning, especially on the financial side. Other life-changing experiences, like the loss of a job or the death of a spouse, can happen suddenly and unexpectedly. So how can you financially prepare yourself and your loved ones for these various life events?

Key Questions to Consider 

As you think about how to provide greater financial security for yourself and your loved ones, here are a few important questions to consider:

• Do you have disability insurance to provide for your family in case you are diagnosed with an illness or experience an accident that leaves you disabled and unable to work?
• Do you have adequate life insurance coverage at this point in your life? Would your family be okay financially if something happened to you?
• Would an accidental death insurance or critical illness insurance policy help provide more of a financial safety net for you and your family members?
• How will you pay for your children’s college education?
• Are you on track with your retirement planning? When do you and your spouse plan to retire? Have you considered an annuity to create a guaranteed stream of retirement income?

Becoming Disabled

Did you know that more than one in four of today’s 20-year-olds will be disabled before reaching retirement age?⁸ Disability income insurance can help create a financial safety net to provide you and your family with supplementary income in case you experience an illness or accident that prevents you from working. Consider how much money your family might need to maintain their current lifestyle if your income was eliminated, and consult with a financial professional to determine how much disability income insurance would be recommended for your life situation.

As Your Family Grows

Living is expensive, no matter what, but when you have dependents who rely on your income, you could feel this financial pressure more intensely. For example, having several kids under the age of 10 may lead to cheaper and more creative vacation plans. With more dependents, you may be pursuing new financial paths to generate extra income for your growing family, like the possibility of investing in a two-family residence to collect rental income from additional tenants.

Generational Care

You also may find yourself living in a multigenerational household, caring for an aging parent or grandparent. Preparing to financially care for your loved ones, both young and old, can create many demands on your financial resources.

Effective planning for the future may involve investigating long-term care insurance coverage for you and other family members to help pay for costs associated with nursing home care, home health care and assisted living facilities down the road.

Estate Planning

Have you thought about how you want to distribute your financial resources after you’re gone? Transferring wealth to the next generation can be accomplished in different ways, including life insurance policies and trusts. You may decide to leave money to your favorite charity by naming an organization as your life insurance beneficiary. Working with an attorney can help ensure that your assets are protected and transfer according to your wishes. Important estate planning measures include creating a will, setting up any necessary trusts, getting a power of attorney (someone to make decisions on your behalf in case you are unable to) and naming a health care proxy (power of attorney for health decisions). If you are caring for aging parents or grandparents, you may need to assume estate planning responsibilities for them as well.

6. Plan Now for Your Retirement

According to the National Institute on Retirement Security, “In overwhelming numbers, Americans are worried about their ability to attain and sustain financial security in their older years. Three-fourths of Americans say the nation faces a retirement crisis. This research demonstrates that many Americans feel like they are not saving enough for their retirement. No matter how old you are, it's never too early or too late to save for your retirement. The earlier you start saving for retirement, the more you can take advantage of the power of compound interest to grow your investments.

Maximize Your Benefits

If you work for an employer, don't let free money go to waste. Be sure to take advantage of financial benefits from your employer like 401(k) matching contributions and stock options. By maximizing your financial benefits through your employer, you are that much closer to your retirement goals.

Watch Over Your Accounts

Keep an eye on you both your employer-sponsored and individual retirement accounts. Remember your retirement portfolio requires ongoing management for proper asset allocation and rebalancing at least once a year. Evaluate the economic markets as well as your own risk tolerance and make changes accordingly. And if you leave your current employer to change jobs, consider taking your 401(k) or 403(b) retirement money with you by rolling it over to your new account with your new employer or transferring it to your own individual retirement account (IRA).

7. Review Your Key Financial Information Annually

As you ring in the new year with family and friends, remember to take stock of your financial life as well, especially your investment goals. Is it time to maximize your retirement account contributions by funding either a traditional or Roth IRA? Whether it’s during January or another time of year, it’s helpful to conduct an annual assessment of your credit report and score, insurance coverage and investments, especially your retirement accounts.

Check Your Credit Report

It’s a good idea to check your credit report and score at least once a year to keep track of your current creditworthiness and ensure your creditors and lenders are reporting accurate information about your financial activities. You are entitled to a free credit report every 12 months from each of the three major consumer reporting companies (Equifax, Experian and TransUnion). Visit the Consumer Financial Protection Bureau’s website to learn how to get a copy of your credit report and how to obtain your credit score.⁹ Your credit card company may provide your credit score to you for free. Be aware that your credit utilization rate or ratio — calculated by dividing your current total credit card balances by your total credit limit — can significantly affect your credit score. If your credit utilization rate is too high, it may lower your credit score.

Review Your Insurance Coverage

Evaluating your insurance coverage every year is also important. Everyone needs health and auto insurance, but have you considered what you might need in terms of other types of financial protection, like life, disability, long-term care, critical illness and Medicare supplement insurance? In addition, be sure to review your financial beneficiaries on a regular basis to make sure they are current on your insurance policies, employer-sponsored retirement plans (such as 401(k) and 403(b) plans) and individual retirement accounts (IRAs). If you have a flexible spending account (FSA) for medical and childcare expenses through your employer, make sure to exhaust your funds so you don’t lose any accrued money at the end of the year.

Monitor Your Investments

Don't forget to conduct a yearly assessment of your other investments as well – which might include real estate, stocks, bonds, mutual funds, index funds and exchange-traded funds (ETFs). Is it time to liquidate some of your assets to create more cash reserves? Is your retirement portfolio balanced appropriately given current market conditions and your personal risk tolerance? Investing the time to review your investment goals and evaluate your financial accounts on a regular basis and make any necessary adjustments will help keep your financial life on track by aligning your short- and long-term financial goals with the most appropriate investment vehicles.

8. Consult a Financial Professional

Finances can get complicated, and when they do, remember you don’t have to go it alone. Even if you consider yourself financially educated and well informed, sometimes the input of an outside professional can make all the difference. Working with a financial professional can help you clarify your financial needs and goals and find the right financial products and services, from insurance and annuities to retirement planning and investing, to fit both your budget and lifestyle.

We have experienced financial professionals eager to help you build greater financial security and explore what financial solutions are right for you.

   Strengthen your financial plan with clear goals and expert guidance. Get My Free Financial Review  

Sources

1. Bankrate’s 2024 Annual Emergency Savings Report. https://www.bankrate.com/banking/savings/emergency-savings-report/
2. States with the most credit card debt. https://www.bankrate.com/finance/credit-cards/states-with-most-credit-card-debt/.
3. Student Loan Debt by Age. https://educationdata.org/student-loan-debt-by-age.
4. Auto loan debt study. https://www.experian.com/blogs/ask-experian/research/auto-loan-debt-study/.
5. Auto loans. https://www.consumerfinance.gov/consumer-tools/auto-loans/.
6. How much Americans owe on their mortgages in every state. https://www.experian.com/blogs/ask-experian/how-much-americans-owe-on-their-mortgages-in-every-state/.
7. A Consumer's Guide to Mortgage Refinancings. https://www.federalreserve.gov/pubs/refinancings/.
8. Facts | The Faces and Facts of Disability. https://www.ssa.gov/disabilityfacts/facts.html.
9. Learn about your credit report and how to get a copy. https://www.usa.gov/credit-reports/.
10. Life Insurance Statistics. https://www.thezebra.com/resources/research/life-insurance-statistics/.