After a whole year, many things have probably changed in both your personal and financial life. Now’s the time to check in with your finances to make sure you’re doing the right things with your money. Check out our 2023 checklist so you can get, and keep, your finances in shape.
OLIO Financial Planning was founded with a rebellious and stubborn objective: to offer personalized financial advice that’s affordable and accessible for everyone.
As CERTIFIED FINANCIAL PLANNER™ professionals and an SEC-registered investment advisor, our financial planners are held to the fiduciary standard of care – to act solely in the client’s best interest when offering personalized financial advice.
Frankly, it seems crazy we’re even mentioning it. Doesn’t it? Even better, we don’t receive kickbacks from the products mentioned in this guide and we’re confident this will be far beyond what many “financial professionals” would provide for a fee. What do we get in return? Absolutely nothing.
The beginning of the year is the ideal time to map out any major expenses you have planned. While you certainly can’t plan for everything, you can predict what your major expenses will be. Having an outline and plan in place will help you stay on top of your budget, avoid needing to borrow money, or making any drastic lifestyle changes to cover your costs.
We suggest listing life events such as:
+ Buying a house
+ Childcare costs
+ Medical costs
+ Vacations
Try to estimate the total cost for each, so you can get an idea of how much cash you’ll need throughout the year. Having the list not only makes you aware of your upcoming expenses, it’s also great motivation for saving.
Budgeting may not be everyone’s favorite activity, but it pays off (pun intended). An important part of budgeting is setting a target for how much to save each month.
The first step? Understand your current savings behavior. To do this, take some time to review your expenses from last year and see how much you were able to save per month on average. To review your spending and saving, you can use a website like Mint to link your bank accounts and credit cards.
The next step is to evaluate if there is an opportunity to save more. Reviewing your spending breakdown can help you see where your money is going and identify potential areas where you can cut back.
If you want to take your budgeting to the next level, you can use software like YNAB (You Need A Budget) to proactively decide where your money should be going, and later compare that to how it was actually spent. While this approach takes more effort, it can help you be more intentional about your spending.
Don’t let this work go to waste - check in at the beginning of each month to see if you reached your savings target! Then, give your bank account a little pat on the back.
It’s important to regularly check your credit report for accuracy. This report will list your credit activity within the last 10 years and is used to determine your credit score. Your credit score is used by lenders to determine your risk level as a borrower.
You can improve your credit score by making your debt payments on time and keeping your credit utilization below 30%.
You can review your credit report with each of the three credit bureaus once a year for free by visiting annualcreditreport.com. You can also check your credit from a variety of places, like Credit Karma and Credit Sesame at no cost.
Review the personal information, recent credit activity, active accounts, and account balances on your credit report. If you see something suspicious, such as an unauthorized credit check or an unrecognized account, act fast, as you may be a victim of identity theft. More steps can be found using the link below:
https://www.usa.gov/identity-theft#item-208988
You can take action before something suspicious happens by either adding a fraud alert
orplacingacreditfreezeonyouraccount.
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Ifyouhavestudentloans,creditcarddebt,ora carpayment,makesureyouareatleastpaying yourminimummonthlypayment.It’salso importanttoputanyextrafundstowardtheloan withthehighestinterestrate.Theserates determinehowfastyourdebtgrows.Besureto keepaneyeonthisasit’sveryeasytoget behind!
Althoughcurrentfederalstudentloansarenot incurringinterestuntilMayduetorecent legislation,it’sstillimportanttomakepayments towardyourdebt.
Payingmorethantheminimumpaymentis
important, otherwise it can often take years to eliminate your debt.
To be intentional about paying off your loans within a certain time frame, you can use the loan calculator at bankrate.com. This tool shows you how much you need to pay monthly to have your debt paid off by your desired date.
Credit card late fees and interest charges can add up to hundreds of dollars (if not more!) over a year.
Carrying a balance on a credit card means racking up high interest charges each month, sometimes up to 20 or 30% of your balance annually. If you can, use monthly savings to focus on paying down your outstanding balance on time to save on interest charges and late fees.
To help you remember to pay your bills on time, set up autopay. If you do this, you need to make sure you always have the cash available in your bank account so you don’t incur overdraft fees. If this is a concern, consider trying dave.com, an app that helps prevent overdraft fees.
Oh mercy - in times like these having an emergency fund is essential; just ask those who don’t have one. It helps you deal with unexpected life events, bills, etc. without worrying about how you will pay for them. It makes life less stressful if you don’t have to borrow at a high interest rate when things don’t go according to plan.
A good rule of thumb is to build an emergency fund that covers 3 to 6 months of your monthly spending. Review your monthly expenses to make sure you’re setting aside enough.
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Onceyoubeginyourcareer,contributingtoyour employer-providedretirementplan,suchasa 401(k),403(b),etc.isagreatwaytosaveforthe long-term.Thetimeisnow-beforeyougetall cozywithyournettakehomepay-tomakesure youarecontributingasmuchasyoucan.Fun fact:themaximumcontributionperyearhas increasedto$23,000for2023
Therearemanybenefitstocontributingtoa 401(k)orasimilarqualifiedretirementplan.You don’tpayincometaxesoncontributions,which lowersyourtaxbillfortheyear.
Themoneyyoucontributetoaqualified retirementplangrowstax-deferredsoyoudon’t owetaxesoncapitalgains,interest,ordividends intheaccountwhentheyoccur
Also,yoursavingsareon“autopilot.”Mostofthe time,theseretirementcontributionscomeright outofyourpaycheck,evenbeforeyouseeit.This isagoodthing!
Whatifyouremployermatchesyourretirement contributions?Hotdog-thisisahugemultiplier onyoursavings!Thisisasfreeasfreegets. Gettinga25%,50%,oreven100%boostto eachdollaryousaveisnottobeforgone.
Therearetwofeaturesofaqualifiedretirement planyoushouldkeepinmind.Whenyouwithdraw moneyfromaqualified(pre-taxornon-Roth) retirementplan,youarelaterrequiredtopay incometaxesonthemoneyyouwithdraw
This frequently happens when you are older, likely during retirement.
If you need to take money out before you are 59½ years old, you have to pay a 10% penalty in addition to income taxes. So, be sure you don’t need the money before you contribute.
For the vast majority of people, the abovementioned benefits of contributing to qualified retirement plans, make them a great way to save long-term. As an example, the benefit of investing $5,000 per year for 30 years in a qualified retirement plan versus investing in a brokerage account (an investment account that’s taxable each year, based on interest income, dividends, and capital gains) means having about $30,000 more in savings at the end of the period.
After you set aside an emergency fund, pay off high interest debt, and have enough money for your upcoming expenses (nice work!), you should consider investing excess savings. Investing does come with risks, but we think those risks are partially mitigated by investing over long periods of time. Historically speaking, investing has generally generated positive returns but do consider your time horizon. In other words, when do you expect you’ll need the money?
Also, investment returns compound over time, making a huge impact - especially if you start early. If you invest $1,000, after 10 years of 6% growth, it would grow to $1,800, and after 30 years of 6% growth, more than $5,700!
If you are ready to put money away for the longterm, a Vanguard Target Retirement Date Fund could be a great way to get started with investing. You can choose the right fund for you based on your expected retirement date (usually when you are going to be 65 to 70 years old).
While this is considered investing for “dummies” by many in our industry, the investment allocation (i.e. percentage in stocks and bonds) and rebalancing are done without you needing to manage it yourself. And let’s be honest - since we haven’t had a conversation, this is far better than doing nothing at all. Sometimes perfect can get in the way of good. Don’t let that happen when it comes to saving for your future. Insert Nike’s famous tagline: Just Do It.
If you want to start investing outside of an employer-provided retirement account, Vanguard’s Digital Advisor® has low account minimums and no trading fees. But, we would suggest an S&P 500 index fund like SPY over one individual stock like Apple or Amazon. While both are great companies - many thought Enron was too. Betterment could also be a good place to start. While they do charge a small fee, they do a lot of the heavy lifting for you.
Do you want “hot” stock tips? Are you sitting on a plane next to a financial advisor, wondering what the next best thing to invest in is? Chances are he or she and has absolutely no idea. Trust usyou’re probably far better off reading Berkshire Hathaway’s annual reports where Warren Buffett literally shares his knowledge and wisdom, year after year. For free!
As your life changes, so does your need for insurance. Comparing your insurance coverage to your insurance needs on an annual basis is a good habit, and the beginning of the year is a great time to do this.
Are you renting an apartment? If so, you need to get coverage to replace the belongings in your home if they are damaged or stolen.
Your landlord is responsible for the structure you're living in but not your belongings. Renter’s insurance will protect those belongings so long as they're covered in the policy.
Renter’s insurance also protects you from all kinds of tragedies, such as personal injury to a visitor or your neighbor's overflowing bathtub! Check this off your list right away!
An umbrella policy provides liability protection for damages you may owe that exceed your auto and renter’s insurance policies. As your net worth increases, so too does the amount you could potentially be sued for, and the more attractive an umbrella policy becomes.
Since you must have an auto and/or renter’s insurance policy in place in order to get umbrella insurance, this type of insurance is relatively inexpensive. Most major insurers offer umbrella insurance, so we’d recommend starting with the insurance company you already use for these underlying coverages.
Have any life events increased your need for coverage? Typically having children, getting married, or buying a home with your partner will change your coverage needs. In most cases, term life insurance will meet your needs, rather than a more complex whole or variable life insurance policy.
Do you have coverage for short-term and long-term disability? Are you wondering why it matters? While it may seem unlikely that something could happen to you, one in four of today's twenty-year-olds will become disabled before age 67. Meaning you are still alive, can’t work, and have no paycheck. COVID-19 has
has reminded us what it’s like to be without a paycheck for an extended period of time. It’s a very scary situation - especially when you’ve depleted your emergency fund. You may be invincible and time will tell but in the meantime please, please, do not ignore this type of insurance coverage.
Policy Genius is an online insurance marketplace where you can find insurance quotes for life, disability, and renter’s insurance. They also have a basic life insurance calculator that can help estimate the amount of coverage you need.
All too often estate planning is overlooked today until it's too late. Make sure you have the appropriate documents in place to carry out your wishes in the event of a worst-case scenario. Below are the documents we consider to be essential based on your situation today. Moving forward, review your documents annually and update or add to your wishes anytime you have a major life event.
An Advance Medical Directive allows you to designate several individuals who will make medical decisions for you if you’re unable. This is a “springing” document, which means your “Agent” will make medical decisions for you but only after certain conditions are met (i.e. you are deemed disabled or mentally incompetent). Any preferences you’ve expressed will allow your agent to make decisions as if you made them yourself but under one condition - they put your interests first.
Beneficiary forms are used for retirement accounts and life insurance policies to specify how you want your assets to be transferred upon
yourdeath-evenifyoudon'thaveawill.These formsareimportantbecauseanamed beneficiaryoverridesawill,assumingyouhave one,soyourassetsbypasstheprobatecourt process-andit’sfree!
Nameprimaryandsecondarybeneficiaries (sometimesreferredtoascontingent beneficiaries),foranyretirementaccountsand lifeinsurancepoliciessoyouhaveabackupplan intheeventyourfirstbeneficiarydiesalongside you.
PayableonDeath(POD)andTransferonDeath (TOD)designationsareaformofbeneficiary designationforbankandinvestmentaccounts. Theseshouldalsobeconsidered!
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BUDGETING
CASH MANAGEMENT
CREDIT REPORTING
STUDENT LOANS
INVESTING
INSURANCE
ESTATE PLANNING
MONEY MANAGEMENT TOOLS
Weknowthinkingaboutfinancesisn'teveryone's ideaofafuntime,socongratulationsongetting organizedin2023.