Having a solid plan in place — and then following it — may help your financial well-being. These questions can help you see whether you’re on the right track.
Understanding the current health of your finances starts with having a solid plan in place, but it depends on following the plan to help you stay on track and continue working toward your financial goals. That’s where a financial wellness check can be useful. It can help you make sure you’re hitting the right milestones in your plan — and help you confirm that your plan is working for you.
Where to start? Here are six questions that can help set up your financial wellness check.
Are you adding to your investment accounts on a regular schedule?
Saving often and early is rule No. 1 because of the power of compounding. When you leave any investment gains in your account rather than taking them out, those gains can start earning returns as well.
Taking full advantage of your employer’s retirement plan — typically a 401(k) — can be a good place to start. That includes contributing enough to qualify for any potential company match. If the company is going to match you up to a certain percentage, consider putting in at least the percentage that your company will match. Those nearing retirement may want to explore “catch-up” contributions that let you add more to certain retirement accounts.
Are your estate planning documents up to date?
Estate planning documents should generally include a will, revocable trust, health care power of attorney (POA), durable POA for financial matters, and a list of your accounts and their respective contacts and account access information. You might also consider including a net worth statement, life insurance policies, property deeds, and a list of assets for your children.
Talking to loved ones can be an essential part of estate planning. Having those discussions, writing down your wishes, and then formalizing that through official documents can be key.
Do you have an emergency fund?
Unplanned expenses, health events, or loss of income can disrupt the best of plans. A good rule of thumb is to have six months’ worth of expenses in an emergency fund.
You might need your emergency fund even when an event is covered by an insurance policy. If a natural disaster such as a hurricane does significant property damage, it takes a while for the insurance money to become available. And it could take a while for your employer to reopen so you can resume working.
Do you have a plan for paying for your child’s college education?
If you’re thinking about paying for your child’s or grandchild’s college education, consider starting to save soon after they’re born. Think about making college savings a part of your monthly budget just like your retirement savings. 529 plans and other college savings vehicles are worth considering.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.
Are you being smart about taxes?
With accounts such as 401(k)s and Traditional IRAs, money has the potential to grow tax-deferred. That means you pay taxes on the funds when you withdraw them during retirement. But with choices such as Roth IRAs or Roth 401(k)s, you pay taxes on the money at the start but then don’t pay taxes when you take qualified withdrawals. (Other specialized accounts, such as Health Savings Accounts and Flexible Spending Accounts, may also provide tax advantages.)
It really boils down to not putting all your eggs in one tax basket. Putting most of your wealth in tax-deferred savings accounts means when you withdraw your money, you may potentially incur a large tax bill. Diversification with taxes in mind can give you options to help you manage the tax efficiency of your withdrawals.
Are you getting advice from a professional advisor on a regular basis?
Having a financial wellness checkup with a financial advisor and other professionals is like getting health input from a doctor. Your financial professionals can evaluate your situation by taking measurements on a regular basis or whenever a significant life event happens, such as a job change, marriage, or divorce. This can help determine where you stand and what actions to consider. It’s like your financial professionals are getting all the necessary information they need and then prescribing what may help improve your financial well-being.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
Trust Services are available through Wells Fargo Bank, N.A. Member FDIC and Wells Fargo Delaware Trust Company, N.A.
Traditional IRA distributions are taxed as ordinary income. Qualified Roth IRA distributions are federally tax-free provided it has been more than five years since the Roth IRA was funded AND the owner is at least age 59 ½ or disabled, or using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Distributions from Traditional and Roth IRAs may be subject to an IRS 10% additional tax if distributions are taken prior to age 59 ½.
Traditional 401(k) withdrawals are subject to ordinary income tax and may be subject to an IRS 10% additional tax for early or pre-59 ½ distributions.
Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and underwritten by non-affiliated insurance companies. Guarantees are based on the claims-paying ability of the issuing insurance company.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.
