Every year, at about this time, I do some spring cleaning — both of my home and my finances. I won’t bore you of the details of cleaning out my garage, but I will tell you that where my money is concerned, I find that once a year is the perfect time to take a look at where I stand in a variety of areas and make sure that I’m setting myself up for success and covering my bases for the future. I take a look at my credit. I check in with my emergency fund. And I make sure that I have protections in place — an estate plan and adequate insurance coverage — to keep the financial life I’ve worked so hard to build safe for my children and my husband should something happen to me. Here, I’m sharing my checklist with you, in hopes that you’ll incorporate it into your spring cleaning efforts this year:
- Credit. Using the website annualcreditreport.com, you can pull a free copy of your credit report from each of the three major credit bureaus once a year, for a total of three reports annually. I recommend spreading them out every few months, so you always have a recent picture of where you stand. Go over the report carefully, making sure there aren’t any errors. And note that while your credit report won’t contain your score, you can get free scores these days from websites like CreditKarma.com and SavvyMoney.com.
- Emergency fund. The rule of thumb here is to have three to six months worth
of expenses in a liquid savings account — one that you can access easily in case of — yes — an emergency. If you’re in a dual income family you may be able to lean toward the lower end of that rage; single income people and families should put away more because you don’t have another salary to fall back on if you lose your job. Keep in mind that this account is for necessary expenses only, so when you factor in how much money you need, consider things like the electric bill and car payment, not cable and your gym membership.
- An estate plan. A standard estate plan includes four documents: a will, a living will, a medical power of attorney and a durable power of attorney. All are important, but if you have children, a will is a must-have: It names guardians for them, a decision that could otherwise be made by a court. A living will outlines your wishes for care while you’re alive, a medical power of attorney gives someone — usually a family member or close friend — the ability to make medical decisions for you, and a durable power of attorney gives the same rights to someone who can make financial decisions on your behalf. An estate planning attorney will create all four documents for your for around $1,000. If you don’t have them, that’s your assignment for this year. Next year — and every year thereafter — you’ll want to go over them to make sure they’re still up to date. Life events like a birth, death, divorce or new business can be cause for a revision.
- Insurance. Here’s the rule of life insurance: If you have someone — and it can be a spouse, elderly parent, or child — who depends on your income, you need it. If you don’t, you don’t. How much you need depends on how much you’d like to replace for them. Do you want to pay for college? Pay off your mortgage? I have a calculator on my website to help you decide. Then you want to look at disability insurance, which you may have through work but the coverage may not be enough. In general, you want to aim to cover at least 60% of your income. Finally, consider long-term care insurance if you’re around mid-fifties and you have too many assets to spend down and qualify for Medicaid, but not enough assets to self fund care. Generally, that window is between $500,000 and $3 million, not including your home.