A personal finance checklist is essential to stay organized and guide you through the steps to financial freedom. Knowing where you stand financially and where you are going is vital to building wealth. When I began my financial journey, one of the initial steps was creating a checklist of all the tasks I needed to complete. Now, I’m sharing that list with you, and I explain why each of these steps is important.
I’ll love to know what you think about this financial planning checklist. Leave a comment below, and I’ll reply as soon as possible.
Investing information provided in this blog post is solely for educational purposes. IsaveFuture does not recommend or advise investors to buy or sell specific stocks, securities, or other investments.
Create a budget
Creating a budget is an ABSOLUTE MUST for effective financial management. Keeping track of your income and expenses is CRUCIAL. It helps you allocate your finances WISELY without wondering where all your money went. The Every Dollar app is an EXCELLENT FREE OPTION if you prefer digital tools. However, if you are like me and prefer using paper, you MUST print out this template for convenience.
Build an emergency fund.
Including a three to six-month emergency fund in your financial planning is essential. Unexpected events like a roof leak or car breakdown can happen anytime. Without an emergency fund, how much debt would you have to take on to cover these expenses? Borrowing money comes with interest payments, which can be a hassle. An emergency fund ensures you won’t have to deal with this inconvenience.
Manage your debts
Here comes the killer of financial stability—debts. Debts weigh down your income and keep you in the rat race if you let it. Once you have put aside your emergency fund, make it a priority to pay down your debts. Imagine you won’t send any money toward debt now; how much more would you have left monthly? When you finish paying your debts, you will feel like you just got a raise.
There are two common methods to pay debts.
The avalanche method:
This method focuses on paying the debt with the highest interest rate first. When the higher-interest debt is paid off, you put that money toward the account with the next highest interest rate. You will continue to do this until you are done.
The snowball debt method
This method consists of listing all your debts from smaller to larger. Then, you attacked the smaller debt aggressively while paying the minimum on the other debts. When you finish paying the smaller debt, roll the money from that payment onto the next-smallest debt. You continue to do this until you finish paying all your debts.
Create a retirement plan.
Have you ever taken a moment to consider how much money you will need in retirement and when you’ll retire? It is a crucial aspect that many people tend to overlook. Retirement is inevitable, and it’s essential to be prepared. Create a plan and take action toward securing your future.
Establish two critical figures in your retirement plan: the income needed in retirement and the savings and investments required to reach that goal. You can use this retirement calculator to help you figure out those numbers. I have also created this template to help you organize them.
Start investing
Here is where the fun begins—you get to put your money to work for you. As Abert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.”
When you invest money, you earn interest in the principal and earnings. Therefore, your money starts to multiply without you having to do anything. This is true freedom. It is advisable to start investing only after you have cleared all your debts and established an emergency fund. If you are unsure how to begin, refer to this free investing guide.
Save for Kids college
After you have taken care of yourself, it is time to take care of your family. Saving money for kids’ education can be of great help. You can put money away for them in a tax-advantaged 529 plan. This plan allows you to pay taxes on earnings later. If the funds are specifically used for your children’s college education, you may be exempt from paying taxes.
Get a term life insurance
This applies only if you have dependents—anybody who depends on you financially. Investing in life insurance can safeguard your loved ones from any financial setbacks if something unfortunate happens to you. It offers financial stability, assists in settling debts, covers living expenses, and takes care of medical and funeral expenses.
Automate your finance
Automating your finance can avoid a lot of headaches. For instance, automating your bill payments is a great way to ensure they are always paid on time. This helps to avoid late fees and also protects your credit score.
Also, automating your saving and investing can be an excellent solution for those who find it challenging to save money. Doing so eliminates the temptation to use the funds for other purposes. Additionally, automating your investment enables you to dollar cost average into the market, a strategy recommended by financial experts. With this approach, you purchase when prices are both low and high, resulting in a smoother average purchase price.
Prepare for tax time
When you start building wealth, taxes become more expensive and complicated. As responsible members of society, we all want to contribute by paying our taxes. However, we also want to ensure that we are not overpaying. Therefore, take advantage of any tax benefits that are available to you.
When it comes to filing your taxes, hiring a professional is crucial. However, that doesn’t mean you shouldn’t get involved and try to learn as much as possible. After all, no one cares about your money more than you do. Know your filing status and deductions, and gather documents to reduce taxes.
Make your estate planning
Building wealth requires significant effort and sacrifices. Therefore, it is crucial to ensure that your wealth is distributed appropriately in the event of your passing or disability. Without a state plan, especially a will, the state laws will dictate these crucial decisions. This is scary.
Monitor your investments
You probably want to rebalance your investment portfolios based on your financial goals at least once a year. You must remain vigilant and stay on top of your investments. Failure to do so could result in irreversible losses. Take charge of your financial future!
