One of the most important things you can do when planning for retirement is to first of all understand where you are right now.
This is actually pretty simple. But at the same time, there is a little work involved… at first.
Many of us are aware of the idea of a “legacy folder.” It’s simply where you put all your most important documents so if you pass away your spouse or children will have a full picture of your finances.
But what about a tool that helps you while you are still alive have all your information in one place so you always know what is going on with your finances?
Instead of a folder in a dusty drawer, a 3-ring binder would work very well. And since it is to help you while you are still alive, it’s not necessarily a “legacy” document. I like to think of it as part of your roadmap while you’re still alive.
Let’s call it “The Living Financial Binder.”
This binder is going to have all your most important information at your fingertips when you need it most.
How many times have you procrastinated doing something because you knew what a hassle it would be to dig up the necessary information?
“Honey, how much do we still owe on the house?”
“I don’t know. I’ll look in to it sometime. I just have to find the last mortgage statement… wherever that is.”
Three months later you still haven’t found it. And you don’t fully know where you stand financially in relation to your debt and your net worth.
Let’s put all that behind you. Here are the Top 10 Financial Planning Documents You Need In Your Financial Binder.
#1: Table of Contents – This seems pretty obvious. But when you start putting together your Personal Financial Binder you will eventually have a lot of tabs in it. The best way to get through this information quickly is to have a simple Table of Contents. On this page list out what documents are behind each tab for quick reference.
#2: Team of Professionals – This is a list of all the professionals you currently have a relationship with for your personal finance needs. This includes (but is not limited to) your financial advisor, tax accountant, broker, life insurance agent, health insurance agent, property & casualty agent, lawyer, banker, etc. This page should have their phone number, email address, and website (if applicable).
#3: Balance Sheet – This is where you list your total assets and your total liabilities. This may include your home, your mortgage, your Roth IRA, 401(k), nonqualified investment accounts, rental real estate, auto loans, other debts, and much more. If you subtract your liabilities from your total assets, you will arrive at your net worth. It is good to know this figure at all times.
#4: Latest Income Statement – You can get your income figures from your latest tax return. If you don’t want to put your latest tax return in the binder, then make sure you have a sheet that details your earnings and taxes paid. You could even include this at the bottom of your balance sheet if you’d like.
#5: Investment Account Statements – This actually may take up more than one tab because you will have multiple account statements. This may include your latest IRA statement, Roth IRA statement, brokerage account, 401(k), annuity statements, etc. When you receive your latest statement put it in the binder. This gives you quick access to how your investments are doing.
#6: Real Estate Documents – The whole point of this exercise is to have access at your fingertips of your total assets and debts. For this section you could go online to your state tax assessor website and look up your home and print out the tax assessment. This is a ballpark value of your property, not necessarily what it would sell for if you listed it. If you wanted to get more accurate you could look up your Zillow zestimate. Or if you’ve had an appraisal recently use that. Also include your latest mortgage statement so you always know exactly how much you owe on your home.
#7: Health Insurance Coverage – Include your personal coverage policy. The most important thing is to know deductibles, co-pays, co-insurance, who to call to check network coverage, annual out-of-pocket maximum, and your monthly premium. These factors can all affect your personal financial situation, so it’s good to have them readily available.
#8: Life Insurance Coverage – This simply includes your life insurance policy (or a copy of the doc page that shows your death benefit and when the policy expires). I can’t tell you how many times I’ve talked with people that didn’t know when their term policy matured, what convertibility provisions it guaranteed, or if the current premium was guaranteed to carry the death benefit to a certain age. A lot of times people can’t even find the policy. Not good!
#9: Property & Casualty Insurance – This may include your home, car, personal items like jewelry, liability insurance, or an umbrella policy. Call up your P&C agent and have them give you a print out that details the cost of the policies as well as the deductibles and the coverage.
#10: Wills, Power of Attorney, Trust – If you haven’t had a will made then it is wise to do so. It’s very simple and not too expensive and saves your heirs a lot of difficulty too. While you are getting the will, go ahead and have your attorney draft up a Power of Attorney for you. It lets others act on your behalf.
Financial Planning Documents Go Beyond Just Investment Account Statements
Some of these documents go beyond just your account balances and investments. Yet, consider just how important they are.
Meeting your health insurance deductible and annual out-of-pocket maximum could be a serious expense that could affect your financial situation. Or not having a will in place and your heirs receiving less inheritance because the probate process would take longer than normal, incurring higher lawyer fees.
Or even something as basic as P&C Insurance coverage… What if you didn’t realize you were inadequately covered on your home and something happened that required you to foot a big bill because the insurance coverage was not sufficient?
These are all things that can de-rail your retirement plan. The best way to stay on top of this is to have one organized place where you can easily access information on your personal finances.
And as you are going through this process of organizing and taking control of your personal finances, you will probably find areas that need to be addressed. These may include inadequate insurance protection, or a lower than needed amount of investments saved up to this point.