The Less Than 2 Hours a Week Money Prescription
December 17, 2015Our newest blogger, Cynthia Meyer, wrote an excellent blog post on Monday about a “two hour a week money prescription.” While I think her suggestions can work perfectly for many people, others may find that even two hours a week seems like an unrealistic amount of time to be spent on finances. If you’re in that camp, don’t worry!
One of the biggest misconceptions is that you need to know a lot about financial planning before taking action but that can lead to one of the biggest enemies of your financial wellness: inaction from procrastination or analysis paralysis. As they say, complexity is the enemy of execution. If you’re looking for the most time-efficient way to get your finances in order, here are some simple steps that should only take a few minute each and produce the biggest results:
1) Pick a goal. Cynthia recommends starting with a “brain dump” of financial tasks. That’s a great way to get everything on the table but if it feels overwhelming to you, start with your most urgent financial priority. You can use this handy infographic if you’re not sure where to start. If you’ve completed everything on the infographic, other goals may include purchasing long term care insurance, getting your estate planning documents up to date, or saving for education expenses.
2) Run the numbers. This may sound intimidating but it’s really not as bad as it seems. The hardest/most time consuming part will be gathering the necessary info if you don’t already have it. Here are some quick calculators you can use for various goals:
Life Insurance: Unlike many other life insurance needs calculators, this one includes your Social Security survivor benefits, which can reduce your need for life insurance.
Disability Insurance: If you don’t have it through work, run this calculator.
Saving for a goal: If you’re saving for an emergency fund, a down payment on a home or any other large purchase, you can use this calculator to see how much you need to save each month.
Paying off debt: Use this debt blaster calculator to see how quickly you can pay off your debt by putting any extra payments towards your highest interest debt and then once that balance is paid off, applying the payments to the next highest interest rate debt until all the debt is paid off.
Retirement: Get a projection of your Social Security benefits and enter it along with your retirement savings into this retirement estimator, which can tell you if you’re on track for your retirement goals and if not, what you need to do to get on track.
Education: You can use this calculator to estimate how much you’ll be expected to pay out-of-pocket for college expenses and then use that number as the current annual cost in this calculator to see how much you need to save.
3) Fill out some forms. Now it’s time to take actions like applying for an insurance policy or opening an investment account. Here is where you can generally find the best deals:
Health Insurance: If you don’t have health insurance through work, you can find the prices of various health insurance plans in the new exchanges here.
Life Insurance: You can search for low cost individual term policies here and compare them to the cost of purchasing life insurance through work.
Saving for a goal: If your goal is in the next 5 years, put that money someplace safe like a savings account at your bank. (Here are some other options to make that money work harder for you.)
Retirement: It generally makes sense to max out your employer’s HSA (if you have an eligible health insurance policy) and retirement plan first. If you’ve done that, consider putting additional savings in an investment account (in particular, an IRA offers tax benefits) at a discount brokerage firm like Charles Schwab, Fidelity, TD Ameritrade, Scottrade, or Vanguard.
Education: If your state is on the “Honor Roll” or “Dean’s List” in this guide to 529 plans, you might want to choose its plan for the tax benefits. Otherwise, pick any of the ones on the “Dean’s List.”
Long Term Care Insurance: You can see if your state offers a long term partnership program here. These programs offer special asset protection that may also allow you to purchase less insurance than you otherwise would.
Estate Planning: Your employer may provide a way for you to get free or discounted estate planning documents as an employee benefit. You can also draft and store an advance health care directive here. If you need to hire an estate planning attorney, here are some guidelines on finding a good one.
4) Put it on auto-pilot. Set those insurance premium payments or savings contributions to come right out of your paycheck or bank account before you even have a chance to spend them. If you can’t save enough for retirement yet, see if your retirement plan has an “auto-escalation” or “contribution rate escalator” that gradually increases your contribution automatically each year until you’re saving enough.
5) Automate your investments too. If you put your investment money in a one-stop shop solution like a target date fund for retirement or an age-based allocation for education and simply leave it alone, you’ll be ahead of the majority of investors who are either improperly diversified, are paying higher fees for a managed account, or jump in and out of investments at the wrong time (and no one knows the right time to jump in and out). (If you’re looking for a more personalized approach, consider a “robo-advisor.”) This is where not wanting to spend time on your finances can actually work in your favor.
Once you’ve finished the steps with one goal, move on to your next goal, rinse, and repeat. After a while, you might even start to enjoy managing your finances and you can learn about more complex strategies in our blog and our CEO’s new book, What Your Financial Advisor Isn’t Telling You, to further improve your financial wellness. Then spending a couple of hours a week on your finances might not seem so bad!