Seven Tips for Financial Spring Cleaning
With the current amount of extra time in our daily lives, we find ourselves creating “to do” lists. Many of us, for example, have taken on the daunting task of reorganizing our garage or cleaning out the clutter in our closets. Spring is also the perfect time to renew your “Financial House,” resulting in a clear financial state-of-mind.
1. Build your emergency fund.
Many financial experts suggest having a three- to six-month cash emergency fund to cover your living expenses. Paying yourself first is a strategic plan to carry you and your family through rough waters. Saving a reasonable percentage of your monthly income, in a liquid account, is the key to building up this fund.
2. Review your 529 college savings plans.
Now is a good time to review or open a 529 plan for your children’s college tuition. The average tuition cost for a California State University is $26,500, a University of California school is $34,500, and a private university is $56,500 (2020-2021 tuition, room and board fees per collegesimply.com). Since college tuition rises an average of 8% per year, a 529 plan may be a smart way to minimize the financial challenge your family may face in the future. The money saved in a 529 plan grows tax-deferred. When used for qualified educational expenses, the withdrawals are tax free.
3. Consider refinancing your home mortgage.
With interest rates near historic lows, refinancing your mortgage can result in substantial savings over the lifetime of your loan. The current 30-year, fixed-rates are between 3.125% - 3.750%, and 15-year, fixed-rates are 2.990% - 3.410% (based on Bankrate.com). Depending on your current rate, it may be beneficial to review your options to see if a refinance may make financial sense.
4. Review your life insurance needs.
Do you have a large enough policy to support your spouse and/or beneficiaries? Typically, the younger you obtain life insurance, the easier it will be for you to qualify (and generally pay lower premiums). How much insurance you may need will depend on many factors such as projected lifetime income, amount of debt, family expenses, and of course, your health. Consider speaking with an insurance advisor to review your options.
5. Create a secure list of passwords or passphrases.
It’s important to keep a list of passwords or passphrases for your investment accounts, banks, and social media. In order protect your passwords from cybercriminals, one best practice is to keep an updated, hand-written list in a safe location (such as a home safe), with your living trust, and/or with a trusted family member. If you were to pass away suddenly, your passwords/account list will be instrumental information for your family.
6. Track your spending.
Darren Hardy, author of The Compound Effect, suggests keeping a log of where you spend your money for thirty days. By tracking your spending, you’ll likely uncover several unconscious choices of where your money was spent and opportunities to save. There are many apps available (such as Mint) that make budgeting effortless.
7. Pay down debt.
Actively setting a goal to pay off your debt is critical to financial well-being. The interest credit cards charge is accrued daily and will be higher the less often you put money toward your balance. Consider making semi-monthly payments to reduce the interest owed and cut down your debt significantly.
Making your payments on time is one of the most important factors in determining your credit score. Setting a payment reminder on your cell phone or calendar may help keep you on track.
If you have federal student loans, take advantage of the federal government’s pause on college loan repayments. Because of COVID-19, the federal government is not requiring payments on federal college loans through September 30 and waiving the interest during that time. If you can afford to continue making student loan payments considering doing so. During this period, your payments will go strictly to reducing the principal.
The result of paying off your debt will put you in a powerful financial position to purchase a home, take a well-deserved vacation (when the time is right), or increase your retirement account contributions.
As the late author and motivational speaker Jim Rohn put it, “Your financial journey is set by what you do with a dollar. If you start the change, everything will change for you.”
Please feel free to contact one of our advisors for guidance on aligning your current resources to craft your ideal financial future.