Every day is financial literacy day at Wealthy Habits, but April is officially National Financial Literacy Month. With many schools and businesses closed and uncertainty over when they’ll reopen, we’ve put together a list of things to review to keep your finances in order.
To make sure you won’t put off the items on the list, we’ve focused on the ones that could potentially help you spend less and save more.
That got your attention, didn’t it?
Of course, we always advise that you have a clear understanding of your financial situation and do what’s best for your personal situation before making any changes to the items on this list.
Your annual personal finance review should include:
1. Home and auto insurance policies. Most insurance companies are willing to show you how you can save money on auto and home insurance, especially if it helps them earn your business. For example,
- Auto Insurance. Some companies will give you a 10 percent discount if you take a safe driving class.
- Homeowners insurance. There are many ways to lower the cost of homeowners’ insurance, from making sure you understand policy terms to improving home security. Even improving your credit history can help. You can find these and other ideas on the website for the Insurance Information Institute.
2. Life Insurance coverage amount. Let’s face it, no one lives forever and life insurance can protect your family if the inevitable happens before you expect it. Life insurance costs less to purchase when you’re young, but you need to reevaluate your policy annually because monthly premiums can decrease over time. Life situations can change too; if you add a child or your lifestyle changes substantially, you may need to reevaluate your benefit amount.
3. Monthly or recurring memberships. At least once a year, revisit all the monthly memberships or other recurring fees you pay. That means reviewing your bank and credit card statements to identify charges for memberships you no longer or rarely use. $100 or $200 a month might not get your attention, but those fees add up quickly when you multiply them by 12.
4. Your company’s benefits plan. Annual enrollment meetings can be dull. But if you take the time to understand what your company is offering, you’re less likely to leave money on the table, which is what happens when you don’t make full use of your benefits. Here are the big ones that should be on your checklist for an annual review.
- Retirement contributions. If you aren’t contributing the amount your employer matches, you are basically not accepting a raise. Although it can feel impossible to maximize your contribution to your employer’s matching limit, find a way to do it. Your pre-tax savings, together with your employer’s match, will add up faster than you think.
- Retirement (tax-deferred), health saving and flexible spending accounts. Contributions to these accounts are tax-free, which makes them great opportunities to save while reducing your tax liability. (Contributions are deducted before federal income tax withholdings are calculated, which reduces your taxable wages. This helps reduce the amount of federal income, payroll and FICA taxes you pay.) It is always a great idea to talk to your accountant about ways you can maximize your options.
5. Services you pay for. The goal here is to look for comparable but less expensive options. Take the time to review services such as:
- Investment accounts. Fees for investment accounts can vary widely. Depending on your number of transactions, the amount you have invested and the degree you want to be involved with investment decisions, you may find that no-fee or low-fee accounts meet your needs.
- Bank accounts. Bank fees can be a drain on your checking account. Review several months of account transactions to find any fees you may have overlooked. Then examine disclosure forms to see if there are things you can do to waive fees – keeping a required minimum balance, signing up for direct deposit, etc.
- Household services. If you pay for ongoing alarm monitoring, yard care or HVAC maintenance, for example, you may be able to find a lower-cost provider. Talk to friends or neighbors for recommendations or ask your current providers if they are willing to match other providers’ prices or advertised specials.
The most important part of this process is to save or invest the savings you uncover. Set aside an equal amount to be automatically deposited in a savings or investment account. This isn’t free money – it’s money you found through hard work and diligence. Put it to better use. Your future self will thank you.
For more information about National Financial Literacy Month, sign up for one of the student and parent workshops we offer at Wealthy Habits.