Life moves at a rapid clip, for everyone. At some point we all find ourselves getting overwhelmed with the day to day to do list and forget about other important things, like managing our budget, retirement accounts, investments, and savings. Perhaps these seem unimportant or maybe they can just be ignored for a while. Surely you don’t need to watch your money grow, right? Well, that money plant needs to be cared for and watered. Getting too busy for your finances means that you may end up missing out on that growth and have some negative consequences to boot. Here are 7 financial areas you cannot afford to ignore.
Budgeting
What use is a budget if you don’t use it to track your spending? Without tracking your spending against your budget categories, you have no idea if you are meeting your marks or drastically overspending. It’s all too easy to forget about a purchase so you buy it again, or you think you still have money available to spend when you don’t and you end up going over your budget. Failing to track your spending will result in overspending on your basic needs or it could even make you too afraid to spend any money because you are afraid you don’t have money to spend. But tracking your spending doesn’t have to be time consuming. If you are too busy to review each transaction on your bank statement, sign up for an app like Mint or EveryDollar that can link to your bank account and automatically categorize expenses for you. That way you just have to glance at the app to see if your spending is on track.
Saving For Emergencies
Speaking of budgets, you should budget for savings to put into an emergency fund. Failing to prioritize saving may find you swiping a credit card when an emergency hits and cause you to go into debt. Even if you pay it off in a few months, with an average credit card interest rate of 19.02% it is still gonna cost you. And if you don’t use credit, you may find yourself unable to pay for an emergency repair to your home or car which can mean a lot of stress and discomfort. Don’t let yourself end up short in your savings because you didn’t pay attention to how much was in your savings account. Make a plan to sock away money every month and stick to it.
Saving for a Down Payment
Buying a house is a great financial move, but it will cost you more if you fail to save enough upfront to pay a 20% down payment on the house. There are loads of mortgage options available to you if you put down less than 20%, but you will have to pay for private mortgage insurance (PMI), an upfront and/or monthly fee you pay to the mortgage company that insures them in the event that you stop paying on your mortgage. It doesn’t even insure you! And the costs add up quickly. If you pay an extra $100 a month in PMI, that is an extra $1,200 a year that you are NOT paying toward your mortgage that you will pay year-on-year until you own 20% of your home (or hit the 20% loan-to-value ratio if your house goes up in value). And then you may still need to refinance your mortgage to a conventional mortgage and may end up paying closing costs again, not to mention the gamble of a potentially less favorable interest rate and the hassle of the mortgage process and paperwork. In addition to having to pay PMI, you may find that you cannot afford a mortgage on the house you want without already paying 20% upfront. Your lender may not approve you for a mortgage of over 80% of the home’s value, you may find yourself with a less favorable interest rate, or your monthly payment may be just too much for you to comfortably pay. Paying that large chunk upfront lowers the overall amount that you need to borrow, saving you tens of thousands of dollars in interest by taking out a smaller mortgage and giving you a more modest monthly payment amount. Save yourself the headache and money and pay attention to your savings. Intentionally socking away money to pay a 20% downpayment on your home will take longer than a smaller downpayment, but will save you a lot in the long run.
Give Your Bank a Check Up
When you are looking for a place to store those savings you are accumulating for your emergency fund and your home down payment, take the time to research bank accounts and savings rates. You want to ideally find the highest interest rate you can earn on your savings and combine it with low or zero monthly maintenance fees. Interest rates on savings accounts are generally around 1.3% now but can go up to about 2% for some high-yield and online savings accounts. Shop around to find an account that earns you the most you can get for your balance, but make sure that you are not offsetting your interest earnings by paying a monthly fee. There are many free bank accounts out there, either online or at a brick-and-mortar bank. Start by checking with your current financial institution to see if they will offer a free savings account along with your current checking account relationship and compare the rate they offer you with an online savings account. Your emergency fund and home savings accounts should be separate and ideally your emergency fund should be liquid and easily accessed in the event of an emergency, so that is a good account to have at the same financial institution as your checking account.
Company Life and Disability Insurance
One of the cheapest ways to get disability insurance and life insurance is through your employer’s group plan. Because so many people sign up in group plans, insurance companies can offer favorable rates that can often beat rates offered to individuals. When you start a new job it is all too easy to look at the stack of insurance paperwork and figure you will get to it later. Or maybe you sign up for health insurance only but the rest seems unimportant. But I urge you to reconsider. Disability insurance is different from workman’s compensation in that it protects you if you are injured and out of work for a long period of time and can allow you to still draw an income even if you don’t have any more sick leave at work. Life insurance protects your family when you die by providing them money to replace your lost income and perhaps some extra to help pay off debts so the family is not saddled with high costs and a lower income long term. Usually signing up for these company plans is as easy as checking a box, signing a form, and watching the premiums come out of your paycheck. Contact your human resources representative to inquire about the plans they have available and take the time to compare the plans, premiums, and benefits to those available to you as an individual on the open market. Making the time to get your insurance in order can make all the difference between a regular paycheck and destitution if something happens to you.
Your 401(k)
While you are busy forgetting about your money, you are also busy forgetting about your future. Failing to invest in your 401(k), IRA, SEP, or other retirement plan pretty much ensures that you will be working forever since you won’t have a nest egg to live off of in your golden years. If that doesn’t sounds like a plan you want to live out, then now is the time to invest your time and energy in researching your retirement plan options, setting up your 401(k), and executing a plan to regularly contribute. You can easily automate retirement plan contributions either from a deduction from your paycheck or from a monthly withdrawal from your bank account (depending on if you make pre-tax or post-tax contributions to your retirement account. While you are at it, make sure you don’t miss out on any matching funds your employer may offer as a benefit to employees. Be sure to contribute up to the full amount matched by your employer, otherwise you are ignoring free money. It only takes a simple form or a few mouse clicks to set up your contributions as a percentage of your income and to double check that you are receiving your employer’s match. Then make small adjustments to your budget to include those retirement savings and voila, it can operate on auto-pilot.
Your Beneficiaries
Life moves quickly and can change in an instant. You may have set up your life insurance and investment account beneficiaries 10 years ago when you started working, but that time passes quickly and now you are married with two kids. Do you know if your beneficiaries are still unchanged from before you got married and your assets are still indicated to pass to your parents or siblings and not your spouse and children? Maybe you had a will drawn up after you had your first child but haven’t updated it to include subsequent children. Maybe you have since divorced and your ex is still the beneficiary of all your worldly possessions. Updating your beneficiaries is not something you will often think of, but you should remember to do it after any major life event, especially marriage, divorce, or birth of children. Additionally, be sure to remove deceased individuals as beneficiaries. Updating your beneficiaries takes just a few minutes and is usually a very simple form (some even let you update it online), but failing to update it may mean that your loved ones spend months or years in court.
Financial success does not happen by accident and you cannot take a wholly hands-off approach to managing your finances. If you think you are too busy to handle your finances, imagine how busy you will be when you lack the money to retire and you are still working at 75, how busy you will be trying to scrounge together money to pay your bills when you are injured and cannot work, or how busy your family will be going to court to get your house back from your ex-spouse. A small, ongoing time investment to regularly maintain your finances will help you carve out a path to the future of your dreams.
