Something we should all do regularly (monthly is good!) is check in on all of your accounts. This might seem obvious, but many of us are not in the habit of looking. It is important to know how much you have, in what type of account, and what that money is doing for you. Here are 6 common types of accounts you should have and what to look for when checking in on each one.
Checking/savings. How much is in your checking/savings accounts? What are your inflows and outflows? Is there a monthly surplus? You can use our budget tracker to visualize your cash flows. A good rule of thumb is to keep 3 to 6 months of expenses in a checking/savings for your emergency fund. We don’t recommend keeping more in your checking or savings account because the interest rates on these types of accounts are pretty much non-existent these days.
Credit card. Keep track of your spending, make sure all expenses are accounted for and that there are no fraudulent charges. Spend only what you can pay off and pay for charges in full every month. Credit card interest rates are cripplingly high.
Retirement. How does your 401k or your IRA look? Do you know what you are invested in? How has it been performing? If you have an employer match, are you receiving the full amount? Did you know that for every dollar you put into a traditional 401k, you lower your taxable income by a dollar? This could save you thousands each year in taxes.
Brokerage. If you have an investment account, how is it doing? How much and what are you invested in? Is what you’re invested in lined up with your life goals and values? Do you have a plan to sell? Is your portfolio diversified? So many things to consider. Also, while brokerage accounts don’t have tax advantages, there are investments that can offset tax liabilities such as municipal bonds.
Optional Accounts
Health savings (HSAs). HSAs are usually offered through your employer and associated with high deductible health insurance plans. Did you know that this is the only type of account that has TRIPLE tax advantages?! This means (1) money going in gets deducted from your income lowering your tax liability, (2) if invested, it grows tax free, and (3) withdrawals are tax free if used for qualified expenses. That’s a win win win!
529 savings plan. These are tax advantageous accounts established for education spending. Are you receiving a state tax deduction for your 529? Check out this map to see if you live in a qualified state. How is your 529 invested? Did you know that 529 accounts also can be useful as an estate planning tool?
Knowing what you have and what it’s invested in is an important step in understanding your financial wellbeing. We recommend scheduling some time once a month to check in on things. Once you make a habit of checking in on all of your accounts, you can high five yourself. Now you’re better prepared to make financial decisions, woo!