Financial Decisions You Should Make Every Year
Money Girl gives advice on 4 key financial decisions that you should review every year.
No matter if you’re a 20-something just starting to learn about money management, or you have decades of experience, improving your personal finances is an ongoing process.
Maybe you’re earning more or less, have a new family situation, or have completely different financial goals than you did last year.
By taking the time to review a few key decisions and tasks on a regular basis, you’ll find easy opportunities to improve your financial life. Yes, it takes a little time. But I promise that the rewards—like having peace of mind, saving more money, and building wealth—far outweigh the effort.
In this episode we’ll cover 4 key financial decisions that you should review every year.
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Financial Decisions You Should Review Every Year
To achieve financial secuity, don’t forgot to reevaluate the following 4 financial decisions at least once a year:
Decision #1: How Much to Save for Retirement
Most people aren’t saving nearly enough for retirement. To make sure you can live comfortably after you stop working, set aside at least 10% to 15% of your monthly gross income for your golden years.
If you have a workplace retirement plan, such as a 401(k) or a 403(b), make it the first place you squirrel away money for the future. Traditional retirement plans give you a nice tax break and a relatively high annual contribution limit.
Already contributing a percentage of your salary for retirement? Consider bumping it up a percentage point or two. And if you receive employer matching funds, always contribute enough to max out the match so you don’t miss that fantastic benefit.
Don’t make the mistake of thinking that you’re too young to plan for retirement, or that you’ll make up the difference when you earn more later on. Young people have a lot to gain by saving early because they can amass a fortune on far less than someone who starts later in life.
In other words, postponing retirement contributions is expensive.
See also: 10 Things You Should Know About 401(k) Plans
Decision #2: What Insurance Coverage You Need
In order for you and your family to stay safe, it’s critical to have enough of the right kinds of insurance, such as property, health, and life.
Use a site like insuranceQuotes.com to get free quotes from competing companies. Prices can vary considerably over time and also from carrier to carrier. Review your coverage types and amounts every year to make sure you aren’t over- or under-insured for the following types of insurance:
If you die without a will, the courts decide what happens to your possessions and even to your children—not your family.
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Auto: Consider raising your liability coverage if it isn’t enough to protect the total of all your assets (such as your home, cars, and non-retirement investments) from a potential lawsuit. Also, raising your deductible lowers your annual premium. Just make sure you’d have enough savings to cover the deductible if you made a claim.
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Home: Take an inventory of your belongings and consider what additional coverage you may need so you don’t come up short if you’re the victim of a theft, natural disaster, or lawsuit. Remember that home insurance doesn’t cover damage from certain natural disasters, including floods and earthquakes.
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Renters: Your landlord’s insurance never covers your personal belongings or liability. That means every renter should have renter’s policy that protects you from a natural disaster, theft, or lawsuit.
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Health: Starting in 2014, having coverage that pays for a portion of your medical costs is a legal requirement under the Affordable Care Act (also known as Obamacare). If you don’t have affordable insurance through an employer, you may be eligible for a plan that’s subsidized by the government, depending on your income.
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Life: Consider how loved-ones would pay bills, cover future education expenses, and maintain their current lifestyle without you. If you have a young family, a general rule of thumb is to have life insurance in an amount equal to 10 times your annual income.
See also: Who Can Get Health Insurance Through Obamacare?
Decision #3: What Legal Documents You Should Have
There are a few critical legal documents that everyone should have in order to make your wishes clearly known. Once created, update the following each year:
Last will and testament – is a document that every adult should have, no matter your age. If you die without a will, the courts decide what happens to your possessions and even to your children—not your family.
Review your will on a regular basis and make updates that may be necessary due to life changes such as, getting married, divorced, having a child, or becoming a widow or widower.
Power of attorney (POA) – is a document that allows you to give someone you trust, called an agent, the ability to make decisions for you. Your POA can be used if you’re not capable of making routine transactions, like paying bills or signing contracts.
Health Care Proxy – is also known as a health care surrogate or health care power of attorney. It allows you to designate someone to make medical decisions for you if you become sick or mentally incapacitated.
Each year, consider who you’ve designated as your POA and health care proxy and make any necessary changes. You can even appoint more than one agent, if needed.
Living will – is similar to a health care proxy, but only applies when you’re facing death, so you need both documents. A living will specifies what end-of-life care that you’d like to have, such as dying naturally or not.
If you don’t have these important emergency documents, there are online legal sites where you can download templates. But be sure to work with an attorney when you have questions or a complex situation.
See also: Do You Have the Right Emergency Documents?
Decision #4: How to Improve Your Credit Score
Your credit score plays a huge role in your personal finances because it affects what you have to pay for interest, insurance, and various utility deposits. Unfortunately, many of us don’t uncover problems in our credit reports until it’s too late.
Every year, give your credit a check-up by viewing or downloading your credit report for free at annualcreditreport.com. And by the way, checking your own credit never hurts it or gets counted against you in any way.
Look carefully for accounts that aren’t yours, which could indicate that you’re a victim of identity theft. If you see incorrect account details or personal information, submit an online request to get them corrected right away. Errors on your credit file could be dragging down your credit scores, and costing you money, without you knowing it.
See also: Credit Score Survival Kit – a free video tutorial with 3 smart strategies to build credit fast!
How to Make Financial Decisions
If you’ve been putting off important decisions and tasks, consider taking off a day from work to tackle your financial to-do list.
Start with the above 4 major decisions, but consider other ways to save or make more money:
- Open up a traditional or Roth Individual Retirement Arrangement (IRA)
- Transfer debt balances to a low- or no-interest credit card
- Shop for a less expensive phone or cable TV plan
- Create a budget and start tracking your spending
- Switch to a no-fee bank account
- Set new financial goals
Taking a day to improve your financial life will repay you many times over, not just for now, but for decades to come.
More Resources You Might Like
How Much Money Do You Need to Retire?
How Your CLUE Report Affects Insurance Quotes
Don’t Miss Hidden Car Insurance Discounts
7 Essential Rules to Build Credit Fast
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
