Rule of thumb: Before you set financial goals, work on your life goals. Brent Weiss, a certified financial planner and life coach, asks his clients where they want to be in five to ten years.
“What has to happen for you to look back and say, ‘That was a wildly successful period of my life?’” But here’s the catch – Weiss tells his clients not to mention money. Because money is a means to an end. A way to get you closer to what you want. Maybe you want to start a business. Or move to another city or even country. Once you’ve mapped out your life goals, you can work backward to factor in money. Whatever you want for your life, your financial goals should help you get there.
This idea comes from a recent Life Kit episode about financial wellness. In this newsletter, we’ll break down three aspects of your financial life to look into every year. (The episode covers much more – including tasks you should perform quarterly and even daily.
In addition to setting goals, here are a couple of great habits to get into every year – no appointment necessary.
Check in on your investments. At least once a year, check in on your investment accounts, like 401(k)s, Roth IRAs and brokerage accounts. If you have a 401(k), what are you contributing per month or paycheck? Maybe you've gotten a raise since you set up the plan; consider increasing your contributions.
Generally, when checking your investments, pay attention to fees, which you can find listed under the term "expense ratio." "The lower the expense ratio, that's less fees," says Rita Soledad Fernandez Paulino, the CEO of Wealth Para Todos. When you can, Fernandez Paulino says to invest in funds with lower expense ratios. Whatever sort of account you have, you'll also want to look at how much money you're earning on your investments – also known as your rate of return. You can find that information on your account statement or through the online portal for your brokerage firm. Fernandez Paulino says you want to earn at least a 10% average return over ten years. Some years may be higher or lower, but as long as your investments are doing about the same as the S&P 500 (a stock market index made up of 500 of the largest publicly traded companies in the U.S.), Fernandez Paulino says you're probably in a good position. If not, you'll want to rebalance your portfolio. How you rebalance depends on your specific situation. For a deep dive into investing, check out this Life Kit episode.
Get the most out of your savings. Maybe you opened a savings account years ago. Have you checked what interest you're accruing or considered moving that money? Not all savings accounts are created equal. If you have an account with a major bank, your interest rate might be as low as 0.01% says NPR reporter Arezou Rezvani.
Some banks offer savings accounts with interest rates between four and five percent, which can make a difference in growing your savings. Just make sure wherever you end up putting your money, the federal government insures it. Look for the acronyms FDIC or NCUA to check.
Get ready for taxes. Get out your last paystub and check your tax withholding, the money your employer takes from your paycheck and sends to the government on your behalf. If they take out too little, you might get a big tax bill you weren't expecting in April. An accountant or tax planner can assist with the math. Also, the IRS has a calculator to see what your employer should withhold. If you find the numbers are off, you can download a W-4 form from the IRS website, update it, and submit it to your employer.
If you're self-employed or an independent contractor, you can prepare for your quarterly tax bills. "I think a really good habit to build right away is to set up a tax savings account," suggests Paco de Leon, author of Finance for the People and owner of a bookkeeping agency. De Leon says you should be saving anywhere between 10% to as much as 30% of every dollar you earn.
Of course, this isn’t an exhaustive list – but it’s a start to getting you closer to your goals.
–Clare Marie Schneider, Life Kit producer and editor
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