Do You Know These 7 Things About Your Finances?

Whether you follow a spending plan, pay your own bills, and track your income, or you let someone else handle your money, you should know the following seven things about your finances. Your financial stability and ability to reach your monetary goals depend on these details.

1. Your Monthly Net Income

Your monthly net income is the amount of money you bring home after the following deductions:

• Taxes

• Health insurance premiums

• Retirement plan contributions

• Flexible spending contributions

• Dependent care

• Other employer-sponsored benefits

 Knowing your take-home income is essential to keeping your spending in check and saving enough in your emergency fund to cover unexpected expenses. Setting aside three to six months of your monthly net income in a separate savings, money market, or other liquid account helps cover surprise car or home repairs, medical bills, job loss, or other unforeseen events.

2. Your Monthly Expenses 

Knowing how much of your monthly take-home pay goes to savings, investments, and spending is essential for financial security. For instance, the 50-30-20 Rule provides the following framework to streamline your financial planning process:

• Up to 50% of your monthly income goes toward shelter, utilities, food, and transportation.

• Up to 30% goes to discretionary expenses.

• Up to 20% goes to savings, investments, paying down debt, and other activities that build your financial foundation.

 

3. Home and Vehicle Ownership or Lease Agreements

Your name should be on your mortgage or apartment lease, as well as your car title and financing agreement. These details affect how much claim you have to these assets and whether you are legally obligated to continue living in, owning, and paying for the property if your life circumstances change due to separation, divorce, or death. You should also be familiar with the terms of these arrangements to prepare for the possibility that their costs could change, especially with a variable-interest loan or a rental agreement that allows the landlord to change the lease terms with short notice.

4. Insurance Policies and Their Status

Certain assets, such as homes and cars, require insurance coverage. In other cases, such as life or disability insurance, coverage is optional. However, all insurance policies require you to pay premiums to keep them active.

Understand your insurance carriers and coverage so you can take advantage of policies that could protect your wealth in case of unforeseen events. Also, keep your life insurance beneficiary designation(s) up to date to ensure any payout goes to the right individual(s).

5. Financial Account Information and Passwords

Have a list of your assets and the following details as part of your wealth management:

• The names of financial institutions with your checking, savings, investment, and retirement accounts

• Account numbers

• Login credentials

• Beneficiary designations

If you rely on a financial planner and/or legal professionals to manage your financial, tax, and/or estate matters, ensure your spouse, adult children, and/or a trusted family member know their names and contact information. Maintain a list of account data and passwords in a secure location, such as a lockbox or a secure online password manager, that your family member can access if needed.

6. Credit Scores and Credit History

Your credit history and credit score are yours, even if you are married. Any credit cards, loans, mortgages, or other credit accounts held jointly can impact your respective credit histories and credit scores. Your joint account activity is reported on each credit report, along with the balance and payment history.

7. Where Tax Records Are Kept

Whether you are single, file individually as a married couple, or file a joint tax return with a spouse, you should know where the following records are kept:

• Signed and filed tax returns

• Receipts

• W-2s and Form 1099s

• Mortgage documents

• Investment information

• Receipts from the sale of assets

• Other financial documents 

You might need to provide copies of filed tax returns to qualify for a mortgage or other loan, or if the IRS or another government agency audits a return. You could be required to provide receipts and supporting documents or be held liable for additional tax payments, fines, and fees.

*This information is for educational purposes only.

Which of these seven things do you know about your finances? Let me know in the comments!