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Your go-to financial planning checklist for every stage of life

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17 mins

Every stage of life has its opportunities, challenges, and rewards. Each stage also requires a different set of financial needs. As you progress through life, your income will rise and fall and rise again. Your priorities will change, as will your expenses.

Below is a brief financial planning checklist of tasks you should consider as you enter six key stages of life:

Financial planning checklist for entering the workforce

1. Buy disability insurance

One of the first things on your checklist when starting out is to buy disability insurance.

According to the Social Security Administration, about 25 percent of 20-year-olds will become disabled at some point before reaching age 67. A disability limits or prevents your ability to work and earn an income until you’ve recovered. Even if it’s temporary, the loss or reduction of a regular paycheck could cause financial hardship.

Disability insurance covers the potential loss of income caused by injury or illness. If you are unable to work because of a covered disability, the policy will replace part of your income. You will receive these benefits for as long as you’re disabled or up to a maximum period of time spelled out in the policy.

Having long term disability insurance means being able to buy food, pay bills, and cover household expenses while you’re unable to work.

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2. Make a budget

It’s easy to spend every dollar we earn. American culture encourages overspending on luxury cars, large homes, the latest technology, frequent dining out, and lavish vacations.

It’s even easier to fall into this trap when you first enter the full-time workforce. That first paycheck will seem like a lot of money — that is, until the bills start arriving.

No matter how much or how little you earn, you need to save money. Having money in savings helps you deal with emergencies and unbudgeted needs. It also minimizes the need to borrow money and pay interest on credit cards.

Saving money is easier if you know where and how much you spend on household items, bills, and other expenses. Set a budget that includes savings and unforeseen expenses, and stick to that budget no matter what tempts you to overspend.

3. Start saving money

In addition, you should also start saving for retirement as soon as you enter the workforce. Though it may seem peculiar to save for retirement when you’ve just started your career, the sooner you begin contributing and the more you set aside, the more you will potentially have for retirement.

If your employer offers a 401(k) plan, you should be contributing as much as possible. Take advantage of any matching funds your employer provides as well.

Contributing to a qualified retirement plan can also save you money on your taxes. The money you contribute to a 401(k) is excluded from your taxable income, up to an annual maximum. Also, 401(k) plans grow on a tax-deferred basis. This means you won’t pay any taxes on the account assets until you begin withdrawing funds in retirement.

4. Make a plan to repay your student loan debt

If you accumulated student loans to prepare for your career, you should start thinking of ways to repay that debt sooner rather than later.

The sooner you repay student loans, the sooner you’ll free up your income and the more your credit score will improve.

If you have the means, pay more than the monthly minimum payment, which will save you interest in the long run.

If you’re in a position where you need to lower your monthly payment, you can look into refinancing options through private lenders. If you have federal student loans, the Federal Student Aid Office can work with you to develop a repayment plan.

Financial planning checklist for earning a promotion/raise

1. Pay down your debt

You may have racked up credit card and other debt during college and the early years of your career. Your first significant raise/promotion offers an opportunity to expedite repayment of those old debts so you can save and invest more in the future.

You should consider increasing your monthly payments to get rid of debt faster.

If you have several personal loans, medical bills, and/or multiple credit card balances, you should consider consolidating those unsecured debts into one loan.

In addition to simplifying your life to one monthly debt payment, you can also potentially lower your interest rate and the amount of money you spend each month on loan payments.

2. Increase your contributions to your 401(k)

As your income increases, you may be tempted to spend all of your raise. But the smart thing to do is to save as much of as you can for future needs. This includes retirement. Make sure you are consistently increasing the percentage of your income that goes into your 401(k) plan.

3. Open an IRA

Whether or not you have access to an employer 401(k) plan, you should also take advantage of Individual Retirement Accounts (IRAs). These plans allow you to save up to $5,500 annually — $6,500 if you’re 50 or older — for retirement.

As with 401(k), contributions to a traditional IRA are tax-deductible and the assets grow tax-deferred until you begin withdrawals.

IRAs also provide an option called a Roth IRA. The difference with a Roth is that there is no tax deduction for contributions. However, the distributions you take out in retirement will be tax-free income as long as you meet certain qualifications.

An IRA will also come in handy if you switch jobs and want to roll your accumulated 401(k) assets into your own retirement plan. You can typically do this without any expenses or tax penalties.

You can open an IRA through banks, mutual fund companies, and brokerage firms.

4. Set up a team of financial and insurance advisors

As you bring home more money, you may have more opportunities to save and invest. You also need to protect your assets from unexpected events.

The more you earn, the more you can benefit from enlisting professional financial services. There are a number of different financial professionals that specialize in certain areas, such as insurance professionals, financial planners, and investment advisors.

Before you choose a financial professional, seek out referrals from people you trust. Research prospective financial professionals to determine how much experience they have and whether they have been the target of complaints and lawsuits. You should also know how many companies an advisor represents and how they get paid.

5. Assess your insurance coverage

At least once a year, you should review your insurance policies and determine if you need additional insurance and/or higher coverage for the policies you currently have.

If you have depended solely on group coverage for life and disability insurance, you should strongly consider getting your own individual policies. Individual disability and term life insurance offer more protection and they are not contingent on your employment.

Financial planning checklist for getting married

1. Make disability and life insurance a priority

If you haven’t yet purchased disability insurance and life insurance policies, they are an absolute must when getting married.

Even if your spouse works and has their own income, chances are your combined lifestyle is based on both of your incomes. If yours is lost to death or disability, what will happen to your significant other? Can he or she afford the mortgage on your house on one income? If you are disabled, can your spouse continue paying your student loan debts that will still be owed? What about funeral and estate settlement costs?

2. Document your wishes

In addition to life insurance, getting married should also prompt you and your spouse to create or update your will so there is no question of what you want to happen following your death.

You also need to designate somebody to serve as your power of attorney in the event you become incapacitated. This is an individual, typically a spouse, who you authorize to make financial and legal decisions on your behalf. You should also have a health care proxy who makes health decisions for you if you cannot do so.

Also, make sure that your spouse is listed as the beneficiary of your existing life insurance policies and retirement accounts.

3. Check your credit scores

This is a task you should be doing regularly, but it’s especially important prior to marriage. Since you will be combining your finances with those of another, it’s important to know each other’s credit rating.

Your credit score informs lenders and other interested parties of your credit risk. It is based on a number of factors, including how much debt you have relative to your income, and whether you’ve paid past debts on time.

It’s important to know your credit score and that of your spouse since you may be making large purchases together. If one of you has poor credit, it will mean paying a higher interest rate on joint credit cards, your mortgage and auto loans.

If one spouse has poor credit, the only option to avoid paying a high-interest rate is for just one spouse to take out the loan. The problem with that scenario is that only one spouse’s income can be used to determine how much you can borrow.

Another reason to check is that there may be inaccurate information adversely affecting your credit score. A checkup may also reveal identity theft.

If your credit score is below average, there are ways to improve it, such as lowering your credit card balances, paying your bills on time, and fixing any errors on your credit report.

4. Create a joint budget

Money is one of the leading causes of discord in a marriage. Before you say “I do,” both parties should sit down and create a budget.

The budget should include the premiums for both to be covered by life insurance and disability insurance. It should also leave room for both spouses to contribute to retirement plans while also setting aside funds for future needs, such as a home. Perhaps most importantly, the budget should be set up to wipe out any existing debt you brought into the marriage as quickly as possible, while avoiding additional debt.

5. Determine ownership status

An important decision to consider before getting married is whether you and your spouse will jointly own assets or maintain individual ownership. For example, will you combine your existing bank accounts into one with joint ownership, or maintain separate accounts? Will the title of your vehicles have both names?

Financial planning checklist for buying a home

1. Check your credit

If you still haven’t achieved a good credit score (typically considered above 700), then it may not be in your best interest to buy a house. The higher interest rate you’ll pay on your mortgage will cost you thousands of dollars over the life of the loan. Before you proceed further in the home buying process, check both of your scores to ensure you’re not considered high risk.

2. Decide how much you can afford

When deciding how much house to buy, there are a few rules of thumb. One is that your mortgage debt should be no more than 28 percent of your gross income, and your total debt should not exceed 36 percent.

Another tip is to limit your mortgage payment to one-fourth of your total monthly take-home pay (after taxes and other deductions). So if you bring home $4,000 a month, your mortgage payment should be no more than $1,000.

There are a number of online calculators that show what your mortgage payment would be based on the home price, interest rate and term of the loan.

Don’t forget when assessing your home expenses to include private mortgage insurance (required if your downpayment isn’t high enough), property taxes, homeowners association fees, and the cost of homeowners insurance.

Also, keep in mind that you don’t have to buy the maximum you can afford; in fact, it’s better for you financially in the long-term if you don’t.

3. Research mortgage options

Conventional, FHA, USDA or VA. 15-year or 30-year. Fixed or adjustable-rate. There are a number of mortgage options available today, including the ones listed. Some lenders even offer special mortgages to people of certain professions, such as doctors and teachers.

Each mortgage type has pros and cons. Research the options available and which ones you can qualify for, then discuss them with your mortgage lender.

4. Determine the source for your downpayment and closing costs

Most types of mortgages require a minimum downpayment equal to 3 percent of the purchase price. That means if you buy a $200,000 home, you will need to pay $6,000 down to qualify for the loan.

Depending on your credit score and/or the type of loan, you may need a larger downpayment.

Mortgages also have closing costs, which are expenses the lender charges to originate and process the loan. These costs are typically 1 percent to 3 percent of the home’s price.

Before you get too far into the home buying process, you should ensure you have enough to cover these costs. Lenders will typically want to see that you have this money on hand before starting the loan process.

Financial planning checklist for starting a family

1. Review your budget and cut where you can

Children are a blessing but they are also an expense. You will need to adjust your budget to account for diapers, food, and the child’s college saving plan.

The biggest impact will be on child care. If one spouse decides to leave the workforce, you will need to account for that lost income or find creative ways to make extra money. If both spouses work, then daycare expenses will take a large chunk of your budget.

2. Begin saving for college

The average tuition and fees for private four-year institutions were nearly $37,000 during the most recent school year. They are sure to rise even further by the time your children head off to college.

It’s never too early to save for college. There are a number of ways you can set aside education money. Talk to your financial advisor about those options.

One common way to save for higher education is a 529 plan, which is a unique investment program offered by each state. The money you put in today is invested and can be withdrawn tax-free for qualifying education expenses (tuition, fees, books, etc.)

3. Review your insurance needs and adjust where necessary

Work with your insurance professional to determine how much more life insurance you should have to ensure the care of your child in the event you die unexpectedly. This includes being able to put aside money for the child’s college education.

Also, don’t forget to add new children to your health insurance plan.

4. Create or update your estate plan

A proper estate plan will provide detailed instructions on what assets you will transfer to which beneficiaries, as well as when they will receive that inheritance.

If you’re married at the time of death, then in most cases your assets will automatically transfer to your spouse. However, in some states, it may also be split between your spouse and children. If you have minor children, the court can dictate the terms of their inheritance.

Having an estate plan created with the help of an attorney and containing all the proper documentation can minimize the chances of having your assets distributed in a manner that goes against your wishes.

If you have minor children, it’s critical to have a plan that communicates your wishes for their care in the event that both parents pass away. Otherwise, a judge will appoint a guardian.

If you have a child or other family member with special needs, your estate plan should provide for their care if you’re not there to provide it.

As part of the estate planning process, you may want to establish a trust if you have substantial assets and want to leave them to your children at a certain age.

5. Consider a dependent care FSA

As mentioned above, child care is a significant expense. One way to make the cost more manageable is to participate in a dependent care flexible spending account.

This is an account you can participate in through your employer. You make pre-tax contributions to your account, which are automatically deducted from your paycheck, similar to your retirement plan contributions. You can use those funds to pay for qualifying child care expenses. The main benefit is that your contributions reduce your taxable income.

Financial planning checklist for entering retirement

1. Get rid of remaining debt before retirement

One of the best ways to maximize your retirement assets is to avoid debt payments during retirement. Before you officially retire, you should use whatever resources are available to pay off existing debts. Getting rid of those monthly payments means fewer monthly obligations that can eat into your retirement savings.

2. Make a new budget

Transitioning from full-time work to retirement will likely be the biggest life change you experience.

On the one hand, you will have more time to do things you want to do. On the other hand, you can no longer count on the regular paycheck your career provided.

Even if you decide to work part-time or start a business in retirement, it’s important to establish a conservative budget. After all, whatever you have saved up until now has to last your remaining years.

3. Talk with your financial advisor

Your financial professional can help you make key decisions leading up to and after retirement. If you have multiple retirement accounts, they can help you determine which ones to withdraw from first. They can also advise you how much to withdraw from your retirement plans, and how to do so in the most tax-efficient way possible.

Also discuss with your advisor how to best allocate your retirement assets, as well as the right time to begin collecting Social Security benefits.

4. Review your estate plan

Reviewing your estate plan should be a regular activity throughout your working life. It’s especially important as you approach and enter into retirement.

During this period, carefully review your will, power of attorney and health proxy instructions, and beneficiaries on all insurance policies, retirement accounts, and shared assets.

Also make sure that surviving family members know where to find these important documents, while also ensuring they are stored somewhere safe.

5. Downsize

One way to make your retirement assets last longer is to reduce your monthly expenses, such as housing. You probably don’t need the same size home you lived in when you were raising a family. A smaller home can save you on property taxes, utilities, and maintenance. It will also spur you to start getting rid of physical assets, many of which you may be able to sell.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published February 14, 2020
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