Your financial well-being, like your health, can benefit from regular checkups — but where to start? Here is a step-by-step plan to improve your financial fitness.
Pay yourself first. Set a savings goal and implement your strategy by using regular, automatic deposits or investments into the account. If you participate in an employer sponsored qualified retirement plan, such as a 401(k) or 403(b), try to contribute at least the amount needed to obtain the full company match.
Create a budget. It is difficult to set goals for saving without understanding where your money is being spent. Track your expenditures and differentiate between your wants and needs. Reducing overspending on minor expenses, such as a daily latte, can have a big impact on your finances.
Pay down credit card debt. Credit card debt is most likely the highest interest rate debt that you have, and if you have been paying only the minimum amount, set a goal to pay down more of the principal each month. Your ultimate objective should be to charge no more than you can pay off each month.
Prepare a personal net worth statement. A net worth statement is a list of all of your assets (for example, home, bank accounts, investments, etc.) and all of your debts (for example, mortgage, credit cards, car loans, etc.). Compiling this information is a simple exercise that can help you focus on your financial goals.
Review your estate planning documents. Documents that everyone usually needs include a will, a durable power of attorney and a living will (an advance directive). If you have minor children, a will is necessary for naming a guardian in the event of your death. These documents should be regularly reviewed (generally every three years) and modified as needed. Your closest family members should know where the documents are in case of an emergency, and it may be appropriate to review the material with family members, especially those individuals that are designated with specific responsibilities (for example, an executor, trustee, guardian, etc.).
Rebalance your investment portfolio. The asset allocation strategy that you employ in your investment portfolio should be aligned with your financial goals. Over time, certain asset classes (for example, stocks, bonds, cash equivalents, etc.) may have performed better than others, and your portfolio should be rebalanced (re-aligned) back to your target allocation.
Review your insurance. The disability, life and long-term care coverage that you maintain should be reviewed annually to determine whether your protection needs are still being met. At younger ages, the probability of having an unexpected debilitating event is greater than dying prematurely. You should also review your property and casualty coverage (for example, homeowners, automobile, etc.) and, in certain situations, you may want to consider using an umbrella protection policy.
Review your tax plan. Tax laws change periodically and it is important to know how such changes will likely impact your financial situation. A qualified tax advisor should be able to help you understand how these laws will affect you.
If you need further help with these matters or if you need additional assistance for planning for a specific objective, such as preparing for retirement, you would be well served by seeking guidance from qualified wealth planning professionals. For more information, visit pnc.com/wealthmanagement.