Whether you're the designated chief financial officer of your household finances, the spouse tasked with paying the monthly bills, or the partner who makes sure your family will be retirement-ready, there are some aspects of your financial life you can't afford not to know – even if you've entrusted a personal financial planner to handle most of your money matters.
When it comes to determining how to become financially stable, here are seven aspects of managing finances you should always have a pulse on – and why the time you invest in these financial planning steps will always pay off.
#1 Your Monthly Net Income
You probably know your salary – but do you know your monthly net income? That's the amount of cash you bring home after taxes, health insurance premiums, retirement contributions, and any other employer-sponsored benefits plan you may participate in (like flexible spending or dependent care) have been deducted from your paycheck.
While you'll obviously want to keep your monthly expenses below this number (more on that in a minute), knowing your monthly net income also helps ensure you're saving adequately for the unexpected. The importance of having such an emergency stash became overwhelmingly apparent when it came to managing finances in a pandemic.
Home financial planning includes preparing for the unexpected. That's why experts typically recommend you have at least three to six months' worth of your take-home pay in a liquid account you could access to cover expenses in the event of a job loss or a medical emergency.
#2 Your Monthly Expenses
Knowing what you spend each month relative to your income and how much money you consistently save for shorter- and longer-term goals is important to your financial security – regardless of how involved you are in your household's daily financial management.
As explained in The Huffington Post, the 50/20/30 Budgeting Rule provides a simple but flexible framework to streamline your financial planning process. Under this budget, monthly expenses for food, shelter, utilities, and transportation account for no more than half of monthly take-home pay. The next 20% of monthly net income goes to tasks that build your financial foundation (think paying down debt, investing, or saving).
If you're among the 70% of married couples Money Magazine's Love + Money survey revealed fight about money (most commonly when it comes to spending), the financial planning help you derive from the 50/20/30 Budget can be especially helpful. It allocates the remaining 30% of monthly net income to discretionary expenses of your choice. Plus, if your financial circumstances change, it empowers you to easily adjust your saving and spending strategies.
#3 Home and Vehicle Ownership/Lease Agreements
Is your name on your mortgage loan or agreement? What about the title or financing agreement for your car? These details could play a role in how much claim you have to these assets in case of separation or divorce, and/or whether you are legally obligated to continue living in or owning (and paying for) the property, if your life circumstances change.
Your familiarity with the terms of these arrangements also ensures you're prepared for any possibility that their costs could one day change, especially in cases where you may have a variable interest loan, or a rental agreement that states that the landlord can change the terms of your lease with short notice.
#4 Insurance Policies and Their Status
Insurance coverage is required for certain assets like a home or a car, while coverage for short- and long-term disability, life insurance, and personal umbrella policies is optional. Yet, all insurance policies require that you pay premiums to keep them active and current.
Know what coverage you have and with whom, so you can take advantage of policies that could protect your wealth in case of the unexpected. And, for life insurance policies, it's important to keep your beneficiary designations up to date.
#5 Financial Account Information and Passwords
The Wall Street Journal says that creating a list of your assets is an important function of your personal wealth management, whether you're married or not. Your asset inventory should include names of the financial institutions where all checking, savings, brokerage, investment, and retirement accounts are held, along with the account numbers, login credentials for online access, and current beneficiary designations.
Likewise, if you rely on a personal financial planner and/or legal professionals to manage some or all of your tax, financial, and/or estate-related matters, make sure spouses, adult children, and/or a trusted family member knows their names and contact information.
Keep account data and passwords in a secure location (which may include a lockbox or an online secure password manager) that your family or loved ones can access if needed.
#6 Credit Scores and Credit History
By federal law, you are entitled to a free copy of your credit report once a year from each of the three major credit bureaus.
You'll maintain a separate credit history and credit score from your spouse, but Experian explains that any credit accounts – including credit cards, mortgages, and loans – you apply for and hold together may impact both of your respective credit histories and credit scores. That's because your joint account activity will be reported on each of your individual credit reports, along with balance and payment history.
#7 Where Tax Records Are Kept
Whether you file a joint tax return with a spouse, file individually as a married couple, or are single, know where your tax records are kept, including signed and filed tax returns, receipts, W-2 and 1099 forms, and similar documents for investments, mortgage loans, and the sale of certain assets.
Not only may you be asked to provide copies of your past filed tax returns in order to qualify for some loans, but also the Internal Revenue Service can audit your return several years after it's been filed (as can your state or local municipality) based on the specific nature of the issue.
While the Women's Institute for Financial Education (WIFE) explains that about half of the IRS' requests for more information about tax returns may be sent in error, you may be asked to provide original receipts and similar supporting documents. If you cannot, you may be held liable for additional tax payments, fines, and fees.
Knowing these seven aspects of your financial life will stand you in good stead, whether you are 100% responsible for your own financial well-being, or your financial life is entwined with that of a partner or spouse. Through all the stages of your life, it pays to be well-informed.
For more personalized help managing your financial future, contact your First Horizon Advisor, or schedule an appointment with one today to explore ways you can plan for retirement.