15 Steps to Getting Your Financial House in Order

BY Jason Frye

Saving for a rainy day

Most people are familiar with traditional bank offerings ” says Mark Johnson senior vice president of NewBridge Bank. “What they dont realize is how to strategically use some of these financial vehicles to increase savings or to rebuild or establish credit.”

Johnson is referring to the basic savings accounts checking accounts certificates of deposit personal loans and lines of credit that banks offer. His and branch manager Shaun Hills ideas for the strategic use of these financial vehicles offer folks a unique way to use banking basics to their advantage.

One strategy for saving is to set up automatic transfers to move money from checking into savings on a regular basis. By doing an automatic transfer money youd otherwise spend from your checking account is tucked safely away in an interest-bearing savings account.

But savings accounts arent the only types of accounts that accrue interest. From checking accounts to certificates of deposits banks now offer many products that help you grow your money.

Interest bearing checking: “Our Fast Forward Checking a checking account bearing up to 1.5-percent interest [based on the account balance] is a great option for many people who maintain a larger checking account ” Hill says.

Certificates of deposit or CDs are similar to savings accounts but with limited access. CDs often have a set period of time until maturity during which access is limited or penalized but the reward comes in the form of higher interest rates and the limited access encourages savings discipline.

Easing in. According to Hill and Johnson you can use a checking account and savings account (fed by the automatic transfers) to build savings to the point where you feel comfortable locking some of it away in a CD. When the CD matures add more savings to it and let it mature again. Repeat this step a few times and you could have enough to use the CD and savings as collateral against a personal loan or a line of credit. By taking out a loan or credit line and repaying it on time you can establish credit or restore a damaged credit score.

The Nest Egg

I think wealth can be a misleading word ” says Pat Kusek of Kusek Financial. “People hear wealth and they think Donald Trump but really wealth is a relative term. Wealth management is about accumulating and growing your nest egg about having enough set aside for retirement and about being personally and fiscally responsible.”

Fiscal responsibility begins with a budget and Kusek advises anyone without a budget to make one now. She says that tracking your income and spending for three months can give you and a financial advisor a good idea of your situation and help you develop plans for building wealth.

A budget also helps you identify places to reduce spending in order to increase savings. This step can be hard for many people Kusek says “because it makes you take a hard look at wants versus needs.”

Among the things Kusek says people need for long-term financial health are an emergency fund covering the basics (mortgage/rent utilities health insurance food) for six months to a year a retirement fund of some sort a life-insurance policy and good credit.

When investigating retirement funds and more sophisticated investment vehicles its a good idea to lean on the expertise a professional financial planner can offer. Kusek says that a financial planner will help you identify your retirement needs review your budget and current financial situation and assist you in setting saving and spending goals.

Balancing Act
Budgeting for tax time

Sharon Blackburn a Certified Public Accountant (CPA) at Murray Blackburn & Rode LLP says a personal or family budget isnt just necessary its key to your financial success. As she explains it “a budget can help you attain goals and avoid pitfalls in your financial life.”

But budgets do more than just provide you with an overview of your financial health; they make your record keeping practices more disciplined. Blackburn says that good record keeping is essential when you visit a CPA for help at tax time.

CPAs are required to keep up to date with tax-law changes and accounting standards. This means that their familiarity with a wide range of tax forms and preparation methods are invaluable. “One of the benefits of working with a CPA at tax time is that we can assist you in organizing the financial records and information necessary to file a complete and accurate tax return ” Blackburn says.

To make working with a CPA easier its best to provide them with not only the necessary tax documents (like year-end 1099 forms W-2s statements of interest accrued on investments and relevant mortgage or student loan interest information) but with a complete accounting of your income and potential tax deductions most of which can be found in your budget and budget records.

Insuring Against Loss

“Most people are aware of the importance of owning health insurance but disability income insurance is one of the most valuable yet overlooked policies available ” says Tommy Mann president of Mann and Watters Inc. a local insurance and employee benefits firm.

Disability income insurance answers the question what would happen if I were injured and couldnt work for x months? by replacing all (or part depending on the policys value) of your income in the event you become incapacitated. This is only one of the types of insurance Mann advises clients to have.

“For individuals approaching or in retirement age having a long-term care insurance policy is something that should be considered as well ” he says.

Then there is the policy everyone should have and no one likes to talk about life insurance.

where to begin. There are two basic types of life insurance in the market today: term life and permanent life (which includes whole life universal life and equity-indexed life). Term life insurance provides a lower-cost short-term life insurance solution. The policy is bought for a term (10 20 or 30 years generally) and expires with no value if unused. Permanent life carries with it a fixed or flexible premium a cash value component (where you build equity over the life of the policy) and either level or increasing death benefits.

“Term insurance is similar to renting your home while permanent insurance is more similar to owning your home ” Mann explains.

When it comes to how much life insurance coverage you should have Mann believes it is important to look at the actual needs left in the event of a clients passing.

“You need to think about how you can pay final expenses pay off debts and provide education expenses for surviving children and income for the surviving family.”

According to Mann it is especially important for individuals to consider life insurance if their passing would create adverse financial consequences for others either family member or business partners or associates. “Since many policy rates are based on the health of the individual covered were seeing more young people obtaining life insurance before they actually have a family to protect financially ” he says.

Looking ahead
Estate Planning

No one likes to talk about wills and estate planning but this is an essential piece of a good financial plan ” says attorney Hugh Curran of Shipman & Wright L.L.P.

According to Curran many people dont have a proper estate plan in place when they pass on causing their assets and the designation of caregivers for young children to fall into the hands of the court.

But Curran says thats avoidable. “We treat estate planning as a four-part process. First is a will then a durable power of attorney a health care power of attorney and a living will.”

A will determines the distribution of assets after a persons passing from naming guardians and establishing trusts for surviving children and loved ones to allocating properties monies and gifts to family members friends and charities.

A durable power of attorney assigns someone to act as a signatory in the event that an individual becomes incapacitated. This means the signatory can act as a proxy and sign checks and several other types of documents for the incapacitated individual.

A health care power of attorney acts as a durable power of attorney but with special regard to medical treatments and care. An individual must be declared competent when they assign health care power of attorney and Curran recommends establishing this individual well before hospitalization and incapacitation is a possibility.

Living wills determine the extent to which an individual wants to undergo “heroic measures” to keep them alive and takes these hard emotional decisions out of the hands of family members. “The peace of mind a living will provides makes it more of a compassionate gift to the family ” Curran says.