Saturday, May 31, 2014

AdviceIQ: Springtime financial cleanup

The weather is finally warm again, and here comes spring cleaning. Clean up your finances, too, before the hectic activity and recreation of summer.

Start with these pointers:

Discuss main financial goals with your spouse or significant other– and write them down. Whether saving for a downpayment on a house, paying off outstanding debt or creating a rainy day fund, everyone has a financial goal or two for the year. Writing down your goals helps you think through the details and outline a plan to meet those goals.

Important aspects of your financial life together include credit scores, future big outlays of cash and potential future income. Make sure, too, that you and your significant other are on the same page concerning these goals.

Track your money. On the left side of a piece of paper write down all your sources of income. Look at your tax forms, such as your W-2 wage statement or Internal Revenue Service form 1040, to accurately assess your income.

On the right side of the same paper, write all your financial obligations. Your paystub quickly tells you how much you shell out for health insurance, put toward your 401(k) retirement plan and set aside for taxes.

Don't forget to include the expense of your other insurance policies, mortgage, car payments, student-loan debt and your other financial obligations throughout the year.

Compare the two sides.

Plan for taxes, savings and life. When looking at your gross income, remember that approximately 30% comes right off the top for taxes (federal and state combined), 20% ideally needs to go toward such savings as an emergency fund and retirement assets and half goes to living expenses.

Your healthy financial plan – and future – hinges on this formula. Further, spending just 30% to 40% of your income during your working years on food, shelter, transportation, insurance, kid-related costs, entertainment and the like allows you to maintain your lifestyle in retirement.

Does your inflow exceed y! our outflow? If not, right the ship.

Insure what's important. Make sure you cover all your important financial assets with insurance, including your house, car and health. You also might want to investigate disability insurance and umbrella policies for further coverage. Disability furnishes you income if you can't work, and umbrella coverage protects you against lawsuits connected with your property.

Do you have enough life insurance? For many families, the most cost-effective life option islevel-term with a 10- to 30-year term. If your life insurance needs recently increased – due perhaps to more children or other change in your lifestyle – revisit your coverage amounts.

Many online calculators can help you determine your needed coverage. If you don't work with an insurance agent, it's fine to shop for term life policies online at such sites as matrixdirect, accuQuote and QuickQuote.

Remember to budget for fun. Include a budget for warm-weather fun, from a trip to a local theatre to a vacation to Florida. In researching my latest book, You Can Retire Sooner Than You Think, I learned that happy retirees take nearly twice as many vacations a year as unhappy retirees. Consumer advocate Clark Howard offers great suggestions for traveling on a budget.

Winter's over. Take this moment to give your finances new life, too.

MORE: David John Marotta on tax brackets and capital gains

MORE: Sterling Raskie on the high price of waiting

MORE: Matthew Illian on the rise of mutual fund power

Wes Moss, CFP, is the chief investment strategist for Capital Investment Advisors and a partner at Wela Strategies, both in Atlanta, and is a member of the AdviceIQ Financial Advisors Network, which is a USA TODAY content partner offering financial news and commentary. Its content is produced independently of USA TODAY.

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