As part of your financial fine-tuning, you have already reviewed and addressed your asset allocation, credit report, credit score, and debt load. The task is not over yet, as there are other important aspects of personal finances that must be reviewed and may need improvement. The guidelines below show how to determine these factors, what the target measurements are, and how to make improvements to get on a more firm financial ground.
You will need:
• Internet access
• Receipts for monthly expenses
• Life insurance policy
• Homeowner’s insurance policy
• Auto insurance policy
Step 1: Determine cash flow by tracking monthly expenses for several months. This can be done on free budgeting Web sites like MoneyStrands or Mint. The optimal budget breakdown depends on factors like cost of living, financial goals, and life stage. Once retirement savings and college tuition are handled, there will be more discretionary income. Review cell phone, Internet, and cable expenses and determine if any reductions can be made. Use coupons when grocery shopping, buy items that are on sale, and select store brands rather than gourmet products.
Step 2: Review the level of life, homeowner’s, and auto insurance. Bodily injury coverage for auto insurance should be a minimum of $100,000 per person and $300,000 per accident. Property damage coverage should be at least $50,000. If a car is more than ten years old, think about dropping the collision and comprehensive coverage because the premiums may be higher than the money received from claims. The homeowner’s insurance policy should cover a minimum of 80 percent of the estimated cost to rebuild the dwelling. To determine the adequate level of life insurance, add up debts, future education expenses for children, funeral expenses, and income replacement costs. Increase the levels of each type of insurance as necessary.