Editor’s Note – this article is part of our series “Best financial advice I’ve ever received.” People frequently ask bankers the best piece of advice they have ever gotten. So for this series, we’re asking MidWestOne employees to share the best money management tips they’ve ever gotten.
The best piece of financial advice I ever received has come from a culmination of ideas and sources, including people I have worked for over the years:
Complete an annual financial wellness check.
By analyzing a variety of financial “checkpoints,” you will have a better understanding of your current financial situation, and what you need to do in order to better prepare yourself for the future and retirement.
Tax season is the ideal time to conduct these financial wellness checks because you receive all your year-end statements in the mail anyway. This means all of the information will be at your fingertips.
To conduct a financial wellness check, take the following steps.
Create a net worth statement.
Calculating your net worth gives you a solid understanding of your overall financial situation. To calculate your net worth, list the value of your assets, and then list the value of your debts and liabilities. Finally, subtract the liabilities from the assets.
Review your risk tolerance.
When it comes to investments, your tolerance for risk will change as you get older.
When you’re younger, you typically have a higher tolerance for risk. This means you may be willing to accept significant price fluctuations in exchange for potentially higher returns – keeping in mind that risk and reward are directly related. As you age, risk tolerance typically goes down. You probably want greater stability in your investments – and to achieve this stability, you can live with lower returns.
As a result, it’s important to revisit your risk tolerance on a regular basis to determine if you need to make adjustments for the year ahead.
Check your credit report.
The Fair and Accurate Credit Transaction Act allows you to get one free copy of your credit report every 12 months from each of the three nationwide credit reporting agencies – that’s three free reports each year.
Order your reports, and thoroughly review it to make sure there are no inaccuracies that you need to address.
Review your important financial and legal documents.
Take a look at your estate planning documents, such as your will, trust and powers of attorney to determine if you need to make adjustments. It’s important to do this regularly because what was important in the past most likely will not be important today. Every five years, your will should be updated. For example, the guardianship of your children is something that may change, depending on your stage of life. Making these important decisions in advance will make things run more smoothly if anything were to happen, and allows you to make sure everything stands as you would like it.
Analyze your debt.
An annual financial wellness check is the perfect opportunity to review your debt. Look at your balances, your interest and determine what adjustments you can make to your budget to pay off your debt faster.
Update your records.
Lots can change over the course of a year. Perhaps you’ve moved, gotten married, had a child or gotten a divorce. Take the time at least once per year to update all of your records, update your beneficiaries and more.
Review your budget.
Take a look at your budget and determine whether or not you have to make adjustments for the year ahead. Perhaps you’ve determined it’s possible to save more. Or maybe you’ve found it’s unrealistic to save as much as you had planned to.
Conducting an annual financial wellness check is a valuable tool in taking stock of your current financial situation and determining what tweaks you need to make in the future. While it may take some time to complete these steps, it’s well worth the effort.