Just as we adhere to daily routines for our physical well-being, such as brushing our teeth, showering, and exercising, there are simple financial self-care practices that can safeguard and enhance our financial health. These routine tasks, performed annually, serve as a financial checkup to ensure you’re progressing towards your financial self-care objectives.
Consider this routine as a brief financial self-care health assessment. While there are numerous recommendations for managing your finances, here are five valuable habits to incorporate into your annual financial routine –– no appointments required.
Envision your financial self-care future
Take a moment to contemplate where you aspire to be in the coming three, five, or ten years. This is a question that a financial advisor might pose to their clients when assisting them in shaping their financial self-care objectives. Following that question, they might further inquire, “What circumstances need to unfold in your life for you to reflect and say, ‘That was an exceptionally successful period of my life?’ But here’s the catch – you must exclude any reference to money.”
This stipulation exists because money is a means to an end, and the process of discerning your life objectives initially will help you recognize the financial self-care requirements necessary to achieve them. For instance, perhaps you harbor ambitions of relocating to another country or launching a business venture. Your financial self-care aspirations should serve as a means to bring you closer to achieving whatever you desire.
Review your investments
Annually, it’s a wise practice to assess your retirement investment accounts. If you have a 401(k) or a Self-Invested Personal Pension (SIPP), take a look at your monthly or paycheck contributions. Consider the possibility that you may have received a salary increase since you initiated the plan; contemplate the prospect of augmenting your contributions accordingly.
When conducting this assessment, pay particular attention to fees, which are typically listed for individual funds under the label ‘expense ratio’. Lower expense ratios translate to fewer fees. Whenever possible, opt for funds with lower expense ratios.
Regardless of your investment account type, it’s crucial to examine the returns on your investments, often referred to as your rate of return. You can locate this figure on your account statement or via the online portal provided by your brokerage firm.
Ideally, your goal should be to achieve an average return of at least 10% over a ten-year period. Keep in mind that there will be years with exceptionally high returns, possibly around 21%, as well as years with lower returns.
In cases where your rate of return appears lower, refrain from making hasty decisions to withdraw your investments. It’s imperative to conduct a thorough comparison and assess the overall market performance, rather than solely focusing on your portfolio.
One benchmark you can use for comparison is the S&P 500, an index comprising 500 of the largest publicly traded companies in the United States. If your investments are performing in line with the S&P 500, you are likely in a favorable position.
If not, it’s advisable to rebalance your portfolio for the best financial self-care possible. The specific approach to rebalancing should be tailored to your unique circumstances, including your risk tolerance and the length of time you intend to keep your funds invested in the market.
Ensure your savings are growing
You might have established a savings account quite some time ago. Have you contemplated the possibility of relocating those funds or examining the interest rate you’re earning?
It’s not unusual for individuals with accounts at major banks to receive a meager interest rate of merely 0.01%. This is because not all savings accounts are crafted alike.
Certain banks, including digital-only financial institutions and select larger banks, provide savings accounts that yield interest rates ranging from four to five percent. If your present bank isn’t contributing to the growth of your savings, it’s advisable to explore alternative options to improve your future financial self-care package.
Prepare for the next tax season
If you’re employed, it’s essential to review your tax withholding, which is the portion of your earnings that your employer deducts from your paycheck and remits to the government on your behalf. To avoid any unexpected tax bills come April, scrutinize your last paystub.
If it appears that too little is being withheld, you might want to consult an accountant or tax planner for assistance. Alternatively, organizations like the IRS or HMRC offer online calculators to help determine the appropriate withholding amount. Should you discover discrepancies in the numbers, you can access a W-4 form from the applicable website, make the necessary updates, and submit it to your employer.
For those who are self-employed or working as independent contractors, it’s crucial to prepare for your quarterly tax obligations. A highly advisable practice is to establish a dedicated tax savings account. A general guideline suggests saving anywhere from 10% to as much as 30% of each dollar, pound, or euro you earn. Consistently deposit these funds into your tax savings account to ensure you are financially prepared for potential income tax payments.
Get the most out of your health insurance
Selecting an effective health insurance plan can sometimes be perplexing. Here are some key considerations for a better financial self-care:
- Review your plan’s coverage documents annually, even if you believe you are already familiar with them. Understanding the content of your plan is the initial step before you can effectively navigate its usage.
- Establish a relationship with a proficient primary care physician, as your utilization of health insurance largely depends on your health condition. Regular annual check-ups with your primary care doctor are invaluable in staying informed about your overall health.
- Make the most of preventive care services, including screenings for conditions such as diabetes, cholesterol levels, and blood pressure. Additionally, prioritize routine health assessments such as breast cancer screenings and flu vaccinations.
Ultimately, your health insurance plan not only serves as a tool to enhance your well-being, but to create a better financial self-care situation too. However, its full potential can only be realized when you take the time to explore and comprehend the plan’s benefits, and when you make complete use of it.