Personal finance isn’t always the exciting place that we personal finance bloggers seem to think it is.
While there’s something sexy about finding the right index fund for your Roth IRA, there are plenty of other unsexy things that you just have to do.
Unfortunately, some of the most important items related to your financial situation are often the things that are overlooked.
So, while it might be unsexy, here are 6 personal finance actions you need to take:
1. Create a Will
Thinking about death isn’t usually a lot of fun. But it needs to be done — preferably before it happens.
What will happen to your assets if you die unexpectedly? Who will care for your children?
These are questions that deserve serious thought, especially if you care about your family. Consider how you would make sure your children are cared for, and how you would make sure that your assets are distributed according to your wishes.
Then, create a will that describes your preferred scenario. It’s a way to help your heirs get what they need a little bit faster.
2. Set Up a Trust
The general idea about trusts is that they are meant for rich people. This doesn’t have to be the case, though.
A properly structured trust can help you make sure that your assets are passed on smoothly to your heirs. You can also set up a trust that ensures that your assets are used for the benefit of those you want to help, like your children or a charity.
When you set up a charitable trust, you can help a good cause, and provide yourself with a tax advantage that is quite sexy.
Find out about the tax benefits of different types of trusts, and how they can protect your assets while you are alive, as well as when you pass on.
3. Purchase Adequate Life Insurance
Life insurance provides your loved ones with a benefit in the event that you pass on. It can be used to pay off debt, replace your income, or send your kids to college. Adequate life insurance provides you with peace of mind, and can ensure that your family doesn’t end up in the poor house after you’re gone.
Take the time to analyze how much life you insurance you need, and the purchase the required coverage.
4. Double-Check Your Beneficiaries
Do you want your ex to receive the benefit of the assets in your IRA after you die?
However, if you haven’t changed the beneficiary information on many of your accounts, your money might go to someone else. Even worse: If you haven’t changed the beneficiary information and your assets end up in probate because your designated beneficiary has already passed on as well.
It’s important to understand that the beneficiary information on certain accounts — including HSAs, retirement accounts, annuities, pensions, and life insurance — trumps what is written in your will. That means that your will doesn’t matter if you have a different beneficiary listed on your account.
Regularly review your beneficiary information and update it as needed. Check with the account manager, since there are usually different rules associated with changing your beneficiary information.
5. Do a Fee Review and Make Changes
Once you get your money invested in a retirement plan, or once you begin using a certain broker, it’s tempting to just stick with it.
I paid a 2% expense ratio for years (even though I knew I should switch) because I didn’t want to switch my Roth IRA. While it can be inconvenient, the reality is that higher fees can cost you hundreds — or even thousands — of dollars over your life time.
Do a fee review, and make changes that result in lower fees for you. It can be tedious, but it’s worth it in the end.
6. Create a Tax Filing System
Organize your filing system, whether you keep your records electronically or in hard copy, so that you stay organized throughout the year. Make it a point to keep a folder for tax-related receipts so that you don’t have to hunt them down. You can either scan everything electronically, or keep a file folder. Use this system to organize other aspects of your finances.
It’s kind of boring, but when tax time comes, do you really want the “excitement” of a last-minute rush to file?
No, personal finance isn’t always the sexy subject we’d like it to be. But there are those things you need to just put your nose to the grind and get done.
What personal finance do you find unsexy?