Broker Check

7 Point Checklist to Analyze Your Current Financial Situation

| January 25, 2018
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Getting control of your finances can seem like an insurmountable task. There are so many factors to consider and so much advice out there that it’s hard to figure out the right moves for you. Here are a few steps you can take to quickly become more educated and, therefore, more powerful with your money. Check back next week for the final three points on the checklist.

1. Employer/Union Benefits

If you are a member of any of the stage and/or screen unions, you have a leg up on the other 80% of the country because you have a pension. A pension is, at its most basic, a large sum of money that turns into an income stream when you hit retirement and lasts at least as long as you live. With AEA, your producers are required to contribute to this for you.

The unions also offer a 401(k) option which is an investment so from time to time, sit down with an expert and review if the stocks, bonds, and mutual funds you own in there are the right fit for you. The last, best benefit I’ll mention here for AEA members is the individual health insurance plan. If you hit your weeks, your health insurance is only $100 a quarter. Most people pay upwards of $500 a month!

These are some highlights but you should look at all the benefits that are offered to you. I bet some will surprise you. And anything you don’t understand, just give them a call.

2. Insurance

The point of any insurance is that you pay a little bit of money on a consistent basis (premiums) so if the sh*t hits the fan the insurance company will pay a lot of money to replace what you’ve lost. It’s good to evaluate which risks you want to take on to cover with your own money (self-insured) and when it’s better for you to buy insurance. Here are the insurances that you will most likely come across in your life: health insurance, renters or homeowners, automobile, life (whole life or term), disability, long term care. If you are unsure of how these work or what type of policy would be best for you, find an advisor and ask.

3. Legal Documents

Legal documents are the best way to protect yourself and your interests. My suggestion is that any time you enter into a business relationship with anyone, create a contract or a letter of agreement to make sure you are both on the same page. This is crucial for artistic endeavors and works in development.

In addition to contracts and regardless of age, you should consider getting a will, power of attorney, and living will/health care proxy. These are all documents that give you a chance to have a say in your affairs even if you aren’t medically capable of doing so and, if you can’t or it’s a situation not covered in one of those documents, who can make those choices for you.

4. Current Savings + Investments

This is all about knowing your numbers. How much is in each account? Is it in cash? Stocks? Bonds? Mutual Funds? ETFs? Annuities? Is your account taxable, tax deferred, or tax-free? Are there limits on how much you can put in or take out each year? Do your investments match your personal comfort with risk and the length of time you want to keep money invested before taking it out? It takes some soul searching, research, and possibly an investment advisor but it’s worth it to maximize how efficient you are in growing money.

5. Savings From Cash Flow

What is your savings rate? Do you save a specific amount from each paycheck or are you an accidental saver? Most of us are accidental savers, meaning the plan is “if there is money left over I’ll move it to my savings account.”

From history and math, we know that the ideal savings rate is between 15%-25%. If you are a systematic saver, check where you fall on that spectrum. If you are an accidental saver, it’s time to make some rules. My suggestion is to not jump in the deep end at 25%—start with something comfortable and work your way up over time. The good news is, you don’t need anyone but you to get started and the amount you save has more impact on how much money you’ll have later in life than anything else.

6. Current Debt

This goes back to knowing your numbers and definitions. What kind of debt do you have? Mortgage? Credit card? Student loans? Personal loans? Home equity loans? 401(k) loans)? Life insurance loans?

Next, what is your balance for each of these? Your interest rate? Is there a set payback period? Are there penalties for early repayment? Are you going about this in a systematic way or just throwing money at the debt hoping it goes away? The two most common methods are exact opposites of each other. One says to pay off the highest balance with the highest interest rate first, the other aims for smaller victories along the way by paying off the smaller balances first and then, like building a snowball, roll those payments into paying off the next debt.

7. Net Worth

Net worth is the whole shebang. It’s the number that represents the outcome of every financial decision you have ever made. It is the number we aim to consistently grow. It is the number that will determine when you can retire. With all that importance, you might think there is a complicated algorithm to get there...but there isn’t.

Add up the value of everything you own (stuff and money) then subtract everything you owe (debts and internal taxes for investments) and that’s it. If you want to increase your net worth, either increase your assets or decrease your debts. That is the essence of financial planning, finding the safest, most efficient way of growing your net worth as large as possible.

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