These are some things to do that won’t cost you anything (or hardly anything) other than time, but will help keep your finances organized and under control. It’s a good idea to do these things at least on an annual basis. They may not directly improve your finances immediately, but if you stick with them over the long-term, you’ll see a dramatic change in your financial situation.
Create a written financial plan
If you don’t have written financial goals, drop everything and get it done. If you’ve never done it, it might be difficult to get into the groove, but it will be well worth the effort. Almost nothing will improve your financial well-being more than having awritten financial plan for your future.
Assuming you already have a written financial plan, it’s a good idea to review it on at least an annual basis, and probably more often. I try to have a formal review of my goals about once per quarter, but I’m constantly looking at my plan in the interim, even as often as weekly. For your formal review, check to see if your assumptions and future plans are still the same, and adjust your goals and milestones as needed.
Setup a written budget
The number one rule of building wealth over the long-term is living below your means. Even if you make $500k / year, if you spend $501k / year, you’re going backwards. It’s very difficult to live below your means without a budget. You can budget on a piece of notebook paper, in Excel, Quicken, Money, or Mvelopes. I very highly recommend Mvelopes, and you can read my post on it here. It’s not perfect, but it’s the closest thing to perfect for this that I’ve discovered. Your mileage may vary.
Assuming you follow your budget well, you’ll be adjusting things here and there throughout the year, but once a year, it’s a good idea to sit down and review it from the big picture perspective. Compare your budget with your financial plan and your long-term goals and ensure that the budget is in line with your plan.
Prepare a will
When you’re in your twenties, it can seem a little odd to have a written will. But it’s important, especially if you have any assets (including a home or retirement accounts) or children. This is the only step that will cost you something, but it’s important enough to pay for. You can have an attorney do it for about $500 or use a service such as LegalZoom.com, which will run you $70 – 120, including a review of your finished will by an attorney. You may also want to consider creating a living will.
Every year, take a look at your will and make sure that any major changes in your life from the past year are reflected in the document.
Review insurance policies
Insurance is one of those necessary evils in life. It sucks to pay those premiums every month, but if you ever really need insurance, you’ll be glad you have it. Once a year, you’ll want to do a big-picture overview of your insurance protection. Is your coverage adequate? There are too many different situations to cover here, but in general, make sure you have adequate home, health, car, life, liability, and disability insurance. You should also take a look at your deductibles and see if you feel comfortable raising them, which can save you money in your monthly premiums. If you need help with your specific situation, consult a qualified professional, such as a financial planner, preferably one who does not sell insurance products directly.
Setup a filing system
If you don’t already have one, setup a filing system to keep track of your important documents and records. This will be especially useful when tax time rolls around and you need to find those receipts from that charitable gift you made 8 months ago. This probably doesn’t need to be anything too complicated. Depending on your specific situation, an accordion file for each year may be enough. If you need some general tips on setting up a solid filing system, I recommend Getting Things Done: The Art of Stress-Free Productivity.
Check your credit
At least once a year, it’s a great idea to go to annualcreditreport.com and get copies of your credit report from each of the 3 credit reporting agencies. You’re entitled by law to one free copy per year from each agency. If you find any mistakes, contact the agency to report the error. If you’re particularly paranoid about identity theft, you can sign up for a credit monitoring service, which will notify you when new credit is opened in your name, usually within 24 hours. Equifax, one of the 3 credit reporting agencies, offers such a service. Prices range from $4.95 / month for weekly updates on changes to your Equifax file, to $12.95 / month for updates within 24 hours on changes to your files at all 3 of the agencies.
Make copies of important documents and store them somewhere safe
What if the worst happens and your house burns down, turning all your documents and records into ash? Would you be able to get things back in order? It’s a good idea to make copies of all your important documents and keep them elsewhere. Scanned copies can be stored on an encrypted USB drive and kept in your car, at the office, etc. It’s also probably not a bad idea to buy a small fireproof safe and keep your really important original documents inside.
Review your investment accounts and rebalance as necessary
Once a year, it’s a good idea to review your investments as a whole and rebalance to ensure that your asset allocation is where it should be. For example, if your asset allocation plan says to hold 70% in stocks and 30% in bonds, and stocks have outperformed bonds over the last year such that your holdings are 75% stocks and 25% bonds, you’ll want to rebalance to get back to that 70/30 allocation.
Keeping your finances in order doesn’t have to be that time-consuming. Setting it all up initially is the most difficult thing. After that, most of these tasks could be knocked out in one weekend per year. Not a bad investment of time for a lifetime of financial stability and control.