5 Things Every Woman Should Know About Her Financial Situation
Income and compensation structure for your household.
Whether you’re single, happily married, or contemplating a split, it’s imperative that you understand how the cash flow, well, flows. Make sure you understand how you (and your partner/spouse) are compensated. This goes beyond just the paycheck – are you getting deferred compensation? Is anyone receiving stock options or performance stock? What insurance and retirement benefits come along with your job(s)? While some compensation structures can be confusing, with a little help it can be unraveled in a way that you can understand. Thinking about how you’re compensated isn’t just for those thinking about uncoupling from their partners – it’s helpful to know what potential tax hits are on the horizon, and how you may want to plan for them.
What’s on your tax return.
Most accountants and tax preparers are so efficient that it’s easy to simply nod and sign your return. However, it’s a good idea to walk through your return with your tax professional to make sure you understand what’s on it. This may lead to better planning overall, such as better ways to structure how you pay for things, whether it makes sense to pay off more of your mortgage, whether you have capital loss carry forwards that you can use in the future. Again, it’s not just about dissecting a boring return, it’s about how to be more efficient going forward. Sit down with your financial planner and/or tax professional after tax season for a proactive meeting for the next year – March or April is usually a tough time to get a planning session in with your accountant!
Whether you have enough of the appropriate kinds of insurance.
Insurance is a great tool to insure against a risk. Most commonly we are used to buying property insurance and maybe some life insurance. It’s important to know (a) what you have, (b) how it works, and (c) how well you are covered. And it’s not just about life insurance. If I’m the breadwinner in the household, I definitely care about having enough life insurance so my daughter can go to college without worry, my partner can pay the mortgage and arrange for good childcare. However, I also might consider disability insurance in the event that I am in an accident that renders me unable to earn what I once did. While some people receive disability insurance through their employer, it may not cover what you think it does (some really high earners don’t realize they’re only covered for about 1/3 of what they earn in a year – that’s a big lifestyle change!).
Other situations might call for you to rethink your property coverage. Those in higher risk professions (medical professionals, for example) might think about upping their umbrella coverage on their home. Also, if you have a vacation home you rent out or allow your friends to use, make sure you’re covered for things like slips and falls and other incidents on your property.
Gather a list of what you have, and consult with your financial planner or insurance professional to make sure you understand what you need, what you have, and how each policy works. When you get organized before anything happens, life is so much easier if a challenge arises.
Who owns what – assets and debt.
That oil painting your grandmother gave you – is that yours, or “ours”? Who is on the deed and the mortgage? It’s always a good idea to have an understanding of who owns which assets, and also which liabilities.
You know your spouse went to a great college, but do you know if he or she left with financial baggage? What about credit card debt? Who owns what? Gather a list of your household liabilities (including your mortgage, your car loans, student debt, consumer debt) to understand how much you owe. You should also contrast this against your current credit report to make sure nothing is misstated and you haven’t forgotten about anything. If you’re married, make sure you understand who owns what debt, and what assets “stand for” the debt. In other words, your house can be used as collateral for your mortgage or a home equity line of credit (HELOC), and it’s important to know whether the value of your home exceeds what you owe on it. This is helpful not just for spouses thinking of separating, but for everyone. Creating a simple balance sheet can bring great clarity and can help you make plans for the future in an informed way.
How much your annual expenses are.
When most people come into our offices, we ask them for a list of their annual expenses. Some find this process easy, others find it challenging, and most find it enlightening. If you’re “ballparking it”, you may be missing things. If you’re tech savvy, you may want to enlist a web site like Mint.com to get a snapshot of your regular expenses. Most credit cards now also provide you with a breakdown of expense categories. Don’t forget less frequent expenses, too, like property tax bills, home repair, car maintenance, and annual gifts. Knowing what it costs you to keep your household running is a helpful exercise for budgeting and saving, and building a plan for your future. When you have the details, you can work with your professional team to build out a roadmap for how to get you to your goal destination.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual