10 Steps in the Ultimate Financial Fitness Plan

I recently delivered a talk called, “10 Financial Tips in 30 Minutes,” but you may find you need even less time to see how you can get your financial plans in better shape.

Tip #1 Get Organized! 

  • Everyone has their own filing system, but my recommendation is to organize based on the year and keep documents and statements for at least six years (longer in some cases). 
  • Make sure the location where you keep financial documents is secure and accessible.
  • Consider consolidating accounts. Having accounts all over the place can make it difficult to see the big picture.
  • Make a list of your advisors, including your CPAs, attorney, and credit union or banks. Have their phone numbers and addresses. 
  • Calendar important to-do items such as property taxes, estimated taxes, required minimum distributions, insurance premium due dates, annual password changes, etc. That way even if the bill doesn’t come in the mail, it won’t be forgotten. (For related reading, see: 8 Steps to an Organized Financial Life.)

Tip #2 Know the Balance Sheet

  • Take time to build an annual balance sheet for yourself.
  • This is a great snapshot that allows you to compare different financial years and will help not only you, but also potential lenders. 

Tip #3 Understand What Happens After Marriage, Divorce or Death of a Spouse

  • Figure out what has to be done and what can wait. 
  • Understand the tax consequences, how your income will look and how debt will be paid or joined.
  • In the event your spouse passes away, know the ownership of the assets and how you will be affected, if you need to probate, and whether there is a stepped-up basis of the assets.
  • In the event you marry, know the plan for pre-marital assets.
  • Review and possibly update your beneficiaries, power of attorney, healthcare proxy, and estate planning documents (and possibly a trust document).

Tip #4 Seek Education

  • The library has a ton of resources available, and there are many online resources.
  • Some of my favorite educational websites include:

Tip #5 Trust, but Verify

  • Make sure you get the answers to your questions, don’t let anyone tell you “it’s complicated” or “hard to explain.”
  • Don’t worry about offending, worry about understanding.
  • Follow the Warren Buffett motto, and I’m paraphrasing: If you can’t wrap your head around it, don’t buy it or get involved with it. 

Tip #6 Review Your Insurance

  • I recommend having a brief conversation annually with your home, auto and umbrella insurance agent; and every three years, have them make sure you have the best policy for the cost. Pay very close attention to those exclusion riders and any new exclusion riders. If you don’t remember seeing them, ask for them specifically. 
  • If you are still working, make sure you review your disability insurance at least once a year; understand the coverage amounts and coordination—more is not always better. Understand if it is a taxable benefit, or possibly (if you are paying for it) a tax-free benefit. What triggers it? How long will it last? (For more, see: Be Financially Prepared for an Illness or Layoff.)
  • Life insurance is something that people often ask about. Do I need it and if so, how much? That is too difficult to answer in general terms, but think about what debts you owe, the role of your income (percentage to the household), educational costs and the cost of your final wishes. I recommend reviewing this annually as well.
  • Health insurance is ever-changing. If you are still working, your employer may offer several different types of plans for you to select from. Running the numbers on which plan is better for you each year is really critical and can save you (and your employer) hundreds of dollars. The same is true for those on Medicare. You should be considering any surgery you might need and what the out-of-pocket costs would be as well as what prescriptions you are taking.
  • Long-term care insurance is a whole separate blog, but this too is something that should be reviewed each year.

Tip #7 Understand Medical Coverage Options

  • What questions should you be asking about your medical coverage?
  • For employer-sponsored plans there are often a number of questions:
    • What is the difference between PPO, HMO and HDP? What do the initials even mean?
    • What is an HSA or an FSA? Who can use which one, and what is the maximum amount that can be contributed?
    • What do these plans cost? What’s the coverage?
    • What is a co-pay or co-insurance?
  • For those who are Medicare eligible:
    • What’s the difference between Parts A, B, C, D and supplemental?
    • Should you go with traditional Medicare and add a supplemental policy?
    • Should you go with a Medicare advantage plan (Part C)?
    • What are the premium costs and what is the coverage?
    • What are the co-pays and or co-insurance amounts?
    • What prescription plan should I select? (For related reading, see: Getting Through the Medicare Part D Maze.)

Tip #8 Create an Emergency Fund

  • Everyone (yes, everyone) should have some money designated as emergency funds. This is money they can easily get to if a large expense hits them (such as car trouble, a major appliance failure, etc.).
  • Some may say, well I can just put that on a credit card, which is true for the short term, but you should have the ability to pay that credit card off when the bill comes.
  • I recommend putting it out-of-sight in a savings account you don’t often look at.
  • I also recommend that parents do this with their kids by putting a portion of their allowance in an emergency fund. (For related reading, see: 4 Easy Steps to Create Your Own Budget.)

Tip #9 Review Your Estate Plan

  • I often ask when the last time your will, trust, power of attorney, and healthcare proxy were updated. If it is beyond three years, I strongly recommend a review of each of those documents.
  • Are the beneficiaries of your will and trust still applicable?
  • Are the representatives you select still able to act on your behalf?

Tip #10 Review Your Portfolio

  • I don’t believe in day trading. In fact, I encourage people not to look at their account daily, it only causes anxiety. However, I do recommend a review at least annually, preferably semi-annually.
  • Do you have good asset allocation and do you have good asset diversification?
  • Are you clear on the risk of the portfolio?
  • Does all of the above match your goals? (For more from this author, see: Should I Invest My Savings or Pay off Debts?)