When you’re young, checking in on your financial status might seem like something that can wait. But routinely assessing where you stand can benefit you today and down the road. Here are steps to consider.
(1) Understand your assets and liabilities – The assets you own and the debts or liabilities you have determine your net worth. Assets might include cash, savings, stocks, bonds, retirement accounts, property and anything else of value such as cars or collectibles. Liabilities might include a mortgage, student loans, car loans, bills due and credit card debt. Consider calculating your net worth annually by adding the value of all your assets and subtracting your liabilities. This can help you keep tabs on your overall financial picture.
Tip: If you’re just out of college and have a student loan debt, you may have a negative net worth. That’s not necessarily bad. It just means you have some work to do.
(2) Assess your goals – Once a year, think about your short-, medium- and long-term goals. Are each still relevant? How much do they cost? Are you on track to meet them? Some long-term goals, such as traveling in retirement, may not change substantially year to year. Short-term goals, such as paying off a credit card bill, and medium-term goals, including saving for a house, may change more frequently. You might decide to re-evaluate those every three to six months.
(3) Check your personal credit report – Your credit report contains information about the status of your credit accounts and your bill paying history. A good credit history is critical to qualifying for loans. Also, don’t panic if you don’t have a personal credit report yet, that is not a bad thing. Unlike the US or UK (or other countries), you don’t need to have open credit to borrow, you just don’t want to have a bad credit record – like a missed loan repayment recently.
Tip – MoneyWhizz recommends checking your personal credit report at least once a year (assuming you have one). You can do this by contacting the Central Credit Register (www.centralcreditregister.ie).
(4) Name your beneficiaries – When you open a retirement account or buy an insurance policy, you’ll probably be asked to name a beneficiary—the person who would collect from the account in the event of your death. Marriage, the birth of children, divorce and death can affect your choice. Typically your spouse is your default beneficiary, but you also may wish to designate children or someone else. Though designations likely will not change often, it’s still a good idea to check your elections yearly to make sure they’re still appropriate.
(5) Manage your taxes – For anyone that is self-employed in Ireland, it is important they set enough cash aside to pay them when the time comes. And of course, for everyone else, ensuring they make maximum advantage of the many tax reliefs they are entitled to is equally important. Checking the most up-to-date listing of available (consumer) tax reliefs on www.moneywhizz.org can be quickly and easily done. Plus, for anyone with tax they are entitled to, they have four years to reclaim from Revenue.
(6) Check if your investments and goals align – It is likely your investments, whether in retirement plans or taxable brokerage accounts, consist of mutual funds that hold various kinds of investments. Consider checking quarterly, in January, April, July and October, to make sure your selections are appropriate for your age and financial goals.
(7) Determine if you have the right insurance – About once a year it’s important to assess the type and amount of insurance you need. If you rent your home, you may want to consider renters insurance to protect your belongings. When you buy a home, you need homeowners’ insurance. If you have a mortgage, you’ll be required to have mortgage protection cover. You also may want special coverage for valuable items such as jewellery or artwork. Your insurance company (or broker) can help you assess whether you have the right type and amount of coverage.
Tip: You might also want to consider serious illness protection that pays you a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities that your policy covers.
Frank Conway is Founder of MoneyWhizz, the financial literacy programme and a Qualified Financial Adviser