No matter if you’re starting to manage money for the first time or you have decades of experience, improving your personal finances is an ongoing process. Maybe you’re earning more or less, have a new family situation or have completely different financial goals than you did last year.
By taking the time to review a few key decisions and tasks, you’ll find easy opportunities to improve your financial life. Yes, it takes a little time, but I promise that the rewards — like having peace of mind, saving more money and building wealth — far outweigh the effort.
Here are four small steps that yield big improvements and help improve your personal finances.
1. Review how much you’re saving for retirement
Most people aren’t saving nearly enough for retirement. To make sure you can live comfortably after leaving the workforce, invest at least 10 percent to 15 percent of your pre-tax income for your golden years.
If your employer offers a retirement plan, such as a 401(k) or a 403(b), make it the first place you set aside money for the future. Traditional retirement plans give you a nice tax break and relatively high annual contribution limits.
If you’re participating in a retirement plan, consider increasing your contribution a percentage point or two each year until you hit the annual allowable limit. And if you receive employer matching funds, always contribute enough to max out the match so you don’t miss any free money.
Don’t make the mistake of thinking that you’re too young to plan for retirement, or that you’ll make up the difference when you earn more later on. Young people have a lot to gain by saving early because compounding allows your account to mushroom over time. Getting a head start means you can amass a fortune on far less than someone who starts later in life. In other words, postponing retirement contributions is expensive.
2. Consider the insurance coverage you really need
To protect your assets, make sure you have enough of the right kinds of insurance. Check online to get free quotes from competing companies as prices can vary considerably over time and from carrier to carrier.
Review your coverage types and amounts every year to make sure you aren’t over- or underinsured for the following types of insurance.
Auto
Consider raising your liability coverage if it isn’t enough to protect the total of all your assets (such as your home, cars and non-retirement investments) from a potential lawsuit. Also, raising your deductible lowers your annual premium. Just make sure you have enough savings to cover the deductible if you make a claim.
Home
Take an inventory of your belongings and consider what additional coverage you may need so you don’t come up short if you’re the victim of a theft, natural disaster or lawsuit. Remember that home insurance doesn’t cover damage from certain natural disasters, including floods and earthquakes.
Renters
Your landlord’s insurance never covers your personal belongings or liability. That means every renter should have a renter’s policy that protects you from a natural disaster, theft or lawsuit.
Health
If you’re self-employed or don’t have affordable insurance through an employer, you may be eligible for an Obamacare plan that’s subsidized by the government, depending on your income.
Life
Consider how loved-ones would pay bills, cover future education expenses and maintain their current lifestyle without you. If you have a young family, a general rule of thumb is to have life insurance in an amount equal to ten times your annual income.
3. Know what legal documents you should have
There are a few critical legal documents that everyone should have in order to make your wishes clearly known. Once created, update the following each year.
Last will and testament
This is a document that every adult should have, no matter your age.
If you die without a will, the courts decide what happens to your possessions and even to your children — not your family. Review your will on a regular basis and make updates that may be necessary due to life changes such as getting married, divorced, having a child or becoming a widow or widower.
Power of attorney (POA)
This allows you to give someone you trust, called an agent, the ability to make decisions for you. Your POA can be used if you’re not capable of making routine transactions, like paying bills or signing contracts.
Health care proxy
A proxy is also known as a health care surrogate or health care power of attorney. It allows you to designate someone to make medical decisions for you if you become sick or mentally incapacitated.
Each year, consider who you’ve designated as your POA and health care proxy and make any necessary changes. You can even appoint more than one agent if needed.
Living will
This is similar to a health care proxy, but only applies when you’re facing death, so you need both documents. A living will specifies what end-of-life care that you’d like to have, such as dying naturally or not.
If you don’t have these important emergency documents, there are online legal sites where you can download templates. But be sure to work with an attorney when you have questions or a complex situation.
4. Review & improve your credit
Your credit score plays a huge role in your personal finances because it affects what you pay for interest, insurance and various utility deposits. Unfortunately, many of us don’t uncover problems in our credit reports until it’s too late. Every year, give your credit a check-up by viewing or downloading your credit report. And by the way, checking your own credit never hurts your scores in any way.
Look carefully for accounts you don’t recognize, which could indicate that you’ve become a victim of identity theft. If you see incorrect account details or personal information, submit an online request to get them corrected right away. Errors on your credit file could be dragging down your credit scores — and costing you money — without you knowing it.
If you’ve been putting off important money management decisions and tasks, consider taking off a day from work to tackle your financial to-do list.
5. Additional steps you can take
Start with the above four steps but consider the following other ways to improve your personal finances:
- Open up a traditional or Roth Individual Retirement Arrangement (IRA)
- Transfer debt balances to a low — or no — interest credit card
- Shop for a less expensive phone or cable TV plan
- Create a budget and start tracking your spending
- Switch to a no-fee bank account
- Set new financial goals
Even small steps taken to improve your personal finances will repay you many times over — not just for now, but for decades to come.
A version of this article was published in December 2016.
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