You know you should save for retirement and, as long as the economy continues grumbling, keep a close eye on spending. But if you want to do more than just avoid a financial disaster, go beyond the obvious and add these seven steps to your money to-do list. Sound daunting? Don’t worry — some take as little as 15 minutes!
1. Find Out What You Earn
Of course you know your salary — but what kind of interest does your checking or money market account get? “It’s amazing how many people don’t have this information,” says Carolyn Walder, a financial planner in Alexandria, VA. With so many banks now paying around 4% (visit bankrate.com for the latest numbers), it’s foolish to leave your nest egg in a stingier spot, earning 1% — or even nothing. Some institutions require $1,000 or $2,500 to open a money market account, but others, like Capital One (capitalone.com), set their minimum at $1. Thinking of starting a new career? Here's how to launch your own business!
2. Don’t Max Out Your 401(k)
Despite what you’ve heard, stuffing spare cash into your employer’s 401(k) savings plan isn’t always a wise strategy. Instead, consider contributing only what you need to get your company’s full match. Then stash extra retirement savings in a Roth IRA — available from a bank, broker, or mutual fund -- where earnings and withdrawals are tax free. “Basically, $1,000 in a Roth is worth more than $1,000 in a 401(k), because when you withdraw 401(k) money, you’ll pay taxes on it,” says Jean Fullerton, a financial planner in Manchester, NH.
3. Put Your Kids Second
“People save for their children’s college educations, but you’ve only got one chance at retirement — and you can’t take out loans for that,” says Eric Tyson, author of Investing for Dummies. Translation: Don’t skimp on retirement savings in order to fund your kids’ higher education. If you put money into a 529 plan, be careful how much you invest. You’ll pay taxes on any 529 withdrawal that isn’t used for education costs — so if your child ends up going to an inexpensive community college instead of a pricier private school, you could pay a big penalty. Aim to save enough in a 529 plan to cover only half of expected college costs. It's still possible to find college scholarships for your kids--here are 5 often overlooked sources.
4. Use Money Software
It doesn’t matter if you choose Quicken, Microsoft Money, or another leading brand: They're all similar and can help get your financial life in order. “I think the biggest mistake the average person makes is failing to maintain adequate records,” says Roy Frick, a licensed public accountant in Ocean City, MD. “When you use software, that job is a whole lot easier.” The headache is in the setup, which can take a few hours. Your best bet: Tackle this job as you’re doing your taxes, when your records are all assembled. Set aside one Sunday afternoon, and get it done.
5. Take Pictures of Everything You Own
If anything happens to your home (like a fire or flood), having a clear record of belongings makes dealing with the insurer much easier. But many people don’t spend the time to do a proper inventory. Here’s a shortcut: Take snapshots of each room and all the things in them (get brand names and model numbers), then upload them onto your computer. Make a CD of the photographs. Even easier: Use a video camera and narrate all the necessary details. Then keep a copy of the video or the CD in your metal lockbox at home or in your bank’s safety deposit. Find out what you should know before buying a digital camera.
6. Fix Your Credit
You’ve read the papers, so you know: Many mortgage companies are in financial trouble after making loans to people who couldn’t pay them back. Now these institutions require better credit for new mortgages and refinancings, so having a decent credit score is more important than ever. Luckily, it’s not out of your control. A good chunk of your score is based on timely bill payment, so be sure to to hit those due dates every month this year.
Other ways to make yourself look better on paper: Pay off debt, keep old credit cards to lengthen your credit history, and fix errors on your credit report. Here's how to get a free copy of your credit report.
7. Get Life Insurance — Again
If you have term life coverage that’s several years old, shop for a new policy. Competition has lowered prices so much you can probably buy the same coverage on better terms than were available a decade ago, even though you’re 10 years older. For instance, a 45-year-old female nonsmoker could pay under $45 a month for $500,000 worth of 20-year level coverage. Comparison shop for policies at accuquote.com. Look for a policy worth about 5-12 years of your salary. Your family will thank you for making this smart move. Help your aging parents manage their finances--here's how to care for them without going broke.
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