What will the future look like for your finances? What about the financial future for your children and grandchildren? We could all use some tips to ensure we are planning for the future properly, for ourselves and for our legacy. There are many ways to do this, but here are a few basic points financial experts agree upon.
1. Pay More than the Minimum on Credit Cards
This may be pretty basic advice, but it can’t be said enough. Any outstanding credit card debt you have will never decrease by just paying the minimum. The majority of your credit card’s minimum payment is simply interest. You won’t see your debt decrease until after you are consistently making payments more than the minimum.
It’s extremely difficult to get your personal finances in order with significant credit card debt. It’s sound advice to do what you can to pay over the minimum, even if it’s 10 or 20 dollars above the payment. Of course, on months when you have extra cash flow, it’s best to pay as much as you can. It will get you out of debt and back on track sooner.
2. Create “Keepers” Folder for Taxes
Most people have an envelop of “keepers” to put important tax documents sent through the mail. These may include W-2s and bank statements. If you DON’T have a “keepers” folder, get one. This will reduce the stress of tax season for you or your accountant, and it will help give you a good idea of how much you will owe in April.
The title of this section could have been, “create TWO tax file folders.” In addition to the physical folder, it’s a good idea to create a digital folder on your personal computer as well. With online banking so easy and accessible, many important documents are paperless. We recommend simply creating a folder on your computer’s desktop titled “taxes” and the current fiscal year next to it. When important documents and emails come through, just click and drag them into your folder to have everything in one place.
Another suggestion is to keep this year’s tax folder on your desktop and file at least the last six years’ tax folders in a safe place in your documents. The IRS has up to six years to audit your finances, so it’s good peace of mind to have those records if you ever need them.
3. Increase Your Retirement Contribution
There will be no retirement without a retirement fund. And as fun as your job currently is, you have to contribute to a 401K or IRA in order to one day put this whole “work thing” behind you. First off, if you aren’t contributing to a 401K or IRA, you should do so as soon as possible. Secondly, if you have a retirement plan, increasing the percentage of your monthly contributions – even by a small amount – has a surprising effect on your retirement fund’s total. It will also lower your tax liability, because these contributions aren’t taxed until you receive them.
Some employers even match 401K contributions. Find out if yours does, and if you are fortunate enough to have this benefit, consider contributing the maximum allowed. However, always make sure you are keeping enough in savings for emergencies (new tires, car repairs, etc.). This will also help finance your short-term goals – like home improvements or vacations – so you don’t have to borrow.
4. Monthly Cash Allowance
With all of theses suggestions to direct more of your income to credit card debt and retirement contributions, you may be wondering where this money will come from. If there’s not enough money at the end of the month to take these steps, you might consider taking a good hard look at your personal finances.
Your online bank statement will give you a good idea of where that income is going. Make a budget of essential bills including food, gas and living expenses. Figure out a good amount you’re comfortable spending in non-essentials and take it out in cash on a weekly or monthly basis. This is for entertainment, coffee shop trips and eating out when there are groceries in the fridge. And when it’s gone, it’s gone. You might be surprised how much you can save by practicing a little discipline between paydays.
5. Protect your legacy.
Finally, although it’s not something many people like to think about all the time, you need to secure your finances for after you’re gone. If you’re going to accumulate all of this wealth with the tips above, you better make sure you know where it’s going. It’s the best way you can protect your financial legacy.
These days, there are online software programs available to help you draw up a last will and testament. However, some people aren’t comfortable with this option and choose an estate lawyer.
A good estate lawyer will walk you through the steps. However, there are a few important decisions you must think about before going in. First off, you need to name the will’s executor. This is usually a family member or someone you trust to carry out your wishes. If you have minor children, you should put some thought into who will be their guardian, and where the funds will come from to provide for their financial wellbeing.
If you have already arranged your last will and testament, good for you. However, consider this a reminder to re-visit it. Have you recently been remarried, divorced or have their been additions to the family? It’s important to make sure all of the decisions are relevant to make it as easy as possible for your executor to carry out all of your wishes, financial or otherwise.
Of course, these are just some basic tips to help get you started in the right direction. For more detailed advice and suggestions to get your finances on track for you and your legacy, go speak with one of the many trusted financial experts at your closest Legacy National Bank branch.