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30 Days to Financial Fitness: Week 1

Morningstar's Christine Benz offers a step-by-step guide to getting in peak financial shape.

"To change one's life, start immediately, do it flamboyantly, no exceptions."--William James

 

James, a psychologist, was right on the money with the "immediate" part. But does enacting lasting change in your life need to be momentous or flamboyant? Nah.

Instead, most people who have achieved big goals will tell you they've done so little by little, one small step at a time. The person who lost 30 pounds did so by walking an extra mile a day and putting skim milk in her coffee instead of half and half. The author who wrote a best-selling first novel got it done by writing a few pages a night, after he had put his kids to bed.

The same is true when you're aiming to achieve your financial goals. The broad goals of funding a comfortable retirement, paying for college, or buying a first home can seem daunting, particularly when you think through the dollar amounts that you'll need to save. But if you break these broad goals down into smaller, more manageable tasks, and tackle them one at a time, you can begin to make real progress toward your goals.

Helping you achieve your financial goals without getting overwhelmed by them was the impetus behind my new book, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances. The book coaches you on completing 36 separate financial-planning tasks, from creating a budget to selecting the right investments for your IRA to crafting a retirement portfolio, each in a half hour or less.

In a similar vein, over the next 30 days on Morningstar.com, I'll coach you on completing one financial-planning task per day, with an eye toward getting in the best financial shape of your life. I'll discuss how to invest for goals that are close at hand, how to build a retirement portfolio, and how to make sure your investments are on track from year to year.

Before you tackle those tasks, however, it's important to lay the proper groundwork: You need to get organized and have a good view of your financial picture. Helping you get there will be the focus of the first week's tips.

Day 1: Start tracking your expenses
Degree of Difficulty: Easy
Because most of us are still getting back into the swing of things after the holidays, let's start with a fairly easy task: beginning to track your spending habits. There are Web sites and financial software programs devoted to helping keep close tabs on your household's cash flows, but tracking your expenses can be as simple as jotting them down whenever you find yourself opening your wallet or writing a check. Group your expenses into one of two main categories: fixed (i.e., spending that doesn't change and you can't do without) and discretionary.
Get a start with this simple PDF worksheet.

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Plan to keep track of your expenses for at least a month; that way you can identify patterns in your spending and zero in on your problem spots. Examining cash flows in this way is the first step in creating a budget that aligns with your priorities and the realities of your life. You may also find that tracking your expenditures will have the salutary effect of causing you to think twice before spending money on things you don't necessarily need.

Day 2: Check your credit report 
Degree of Difficulty: Easy
This week is all about getting organized and finding your financial baselines. One of the best ways to get your arms around your household's financial health is to check your credit report. You may be tempted to hop on freecreditreport.com (I know, the catchy lyrics are ringing in my ears, too), but the best place to go for free, comprehensive credit information is
annualcreditreport.com.

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Through this site, you can obtain data about your credit history from the three major credit reporting firms: Experian, TransUnion, and Equifax. You won't be able to see your actual credit score--the agencies still charge for this--but you will be able to make sure that your credit report doesn't include any mistakes that could harm your ability to obtain credit at a decent rate in the future. Checking these reports is also a good way to ensure that identity thieves haven't obtained credit in your name. You can obtain free basic reports from the three credit reporters once a year.

I recently obtained my credit reports using annualcreditreport.com, and found the site to be quite easy to use, so long as I was able to ignore the steady barrage of upsells for paid credit services. After inputting some basic information about myself, including my address, birth date, and Social Security number, I was transferred to the first of the three agencies' sites, where I then answered a few additional security questions.

TransUnion, Experian, and Equifax display credit information in varying ways, but all three show you the names and some basic payment history related to your credit accounts, both now and in the past. The sites also show you whether you've been late with your payments or have had some other type of problem with a creditor.

Eyeball all three credit agencies' reports to ensure that your credit report syncs up with reality, and print each of these reports for further perusal. If you see any information that appears to be incorrect, go to the Federal Trade Commission's Web site for guidance on filing a formal dispute.

Day 3: Set up a bill-paying system
Degree of Difficulty: Easy to Moderate
If you already have a rock-solid system for paying your bills--perhaps you use your bank's online bill-paying system or that of a third-party provider like Quicken--you get the day off. (Your degree of difficulty for today? Definitely easy!)

But if your desk is awash in random bills, or worse yet, if you checked your credit report and saw a history of late payments, it's time to put a formal bill-paying system in place.

I'm a big believer in online banking. Not only does it cut down on the amount of paperwork you'll be responsible for shredding or filing once it comes into your house, but reducing your reliance on snail mail also helps lessen your vulnerability to identity theft.

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Most financial institutions offer online banking these days, and it's usually free of charge and pretty intuitive to use. Simply head to your bank's Web site for instructions on how to implement such a program.

Before you opt to bank and pay your bills online, it's essential that your home computing system has up-to-date security protection, including firewalls, antivirus software, and spyware. Also make sure that you've downloaded the latest version of your Web browser, as it will include the most current encryption technology. Finally, take care when selecting passwords. As always, a combination of letters and numbers will help prevent someone from being able to guess at your password. (If you keep a separate document with all of your account numbers, user names, and passwords--and I'll tackle that step on another day--be sure to password-protect it!)

If you don't use an electronic bill-paying system, I'd also recommend logging any incoming bills on to a calendar as soon as you receive them. Plan to mail upcoming bills at least seven days before their due dates. Note the date on which the bill should be mailed, who you owe, and how much. When you sit down to pay your bills for the coming week or month, this approach will help to ensure that nothing falls through the cracks.

Day 4: Take stock of your assets and liabilities
Degree of Difficulty: Moderate
Now that you're getting warmed up, it's time to move on to the key task that will show you how you're doing financially: checking up on your net worth.

If you keep good records and don't have many financial accounts, enumerating your assets and liabilities will be pretty straightforward and shouldn't be time-consuming. You've got more work ahead of you if your records and portfolio are in a state of sprawl, but think of this as your impetus to streamline and get organized.

My book includes step-by-step guidance and a worksheet for tracking your net worth, but you don't need to get especially fancy. To document your assets, simply retrieve your latest account balances and estimate the worth of your personal possessions, including real estate. (Be realistic! Unfortunately, it's probably not worth what it was a few years ago.) On the other side of the ledger, record any debts you owe, including your mortgage; student, home equity, or auto loans; and credit card balances. Subtract your liabilities from your assets and you're looking at your net worth.

includes step-by-step guidance and for tracking your net worth, but you don't need to get especially fancy. To document your assets, simply retrieve your latest account balances and estimate the worth of your personal possessions, including real estate. (Be realistic! Unfortunately, it's probably not worth what it was a few years ago.) On the other side of the ledger, record any debts you owe, including your mortgage; student, home equity, or auto loans; and credit card balances. Subtract your liabilities from your assets and you're looking at your net worth.includes step-by-step guidance and a worksheet for tracking your net worth, but you don't need to get especially fancy. To document your assets, simply retrieve your latest account balances and estimate the worth of your personal possessions, including real estate. (Be realistic! Unfortunately, it's probably not worth what it was a few years ago.) On the other side of the ledger, record any debts you owe, including your mortgage; student, home equity, or auto loans; and credit card balances. Subtract your liabilities from your assets and you're looking at your net worth.

If your net worth is negative or barely positive, you've got your work cut out for you. Creating and sticking to a budget should be a key priority in the year ahead. And even if your net worth is comfortably positive, you should still spend time digging into the numbers. Is most of your money tied up in a single asset, such as company stock or your house? If so, a key goal should be to diversify your financial assets in the year ahead. Do you have an adequate amount--six months' worth of living expenses at a minimum--stashed in an emergency fund? If you don't, prioritize building up your position in ultrasafe (and unfortunately, ultra-low-yielding) investments before investing in longer-term assets like stocks.

Day 5: Create a master directory
Degree of Difficulty: Easy
"OK, now that's depressing." That was how one of my single friends responded when I suggested that she document all of her financial accounts in case something should happen to her. But the fact is, singletons aren't the only ones who should be documenting their financial assets. And compiling a master directory with essential account information is apt to be just as valuable for you to rely on while you're alive and well as it would be to your loved ones should something to happen to you.

If you've recently completed a net worth statement (day 4), you've gone through the process of sorting through your various accounts and are in a perfect position to create a master directory. But even if you haven't, creating a straightforward document of your financial accounts shouldn't take long at all.

), you've gone through the process of sorting through your various accounts and are in a perfect position to create a master directory. But even if you haven't, creating a straightforward document of your financial accounts shouldn't take long at all.), you've gone through the process of sorting through your various accounts and are in a perfect position to create a master directory. But even if you haven't, creating a straightforward document of your financial accounts shouldn't take long at all.

Your master directory can be either electronic or paper. In it, include financial assets such as bank, mutual fund, and brokerage accounts; company-retirement plan and pension fund details; real estate holdings, and business interests. Alongside or beneath each account name, include account numbers, URLs, passwords, key contacts, and phone numbers. Include similar details for debts you owe and insurance policies.

Given the amount of valuable personal information it includes, your master directory would obviously be manna for identity thieves. So once you've created such a document, it's essential that you take steps to keep it safe. If it's a physical document, keep it under lock and key in your house. If you've created an electronic file, password-protect it using a hard-to-guess password. Then alert a trusted loved one of this document's existence as well as details about how to gain access to it in a pinch.

Plan to keep your document up to date, ideally as part of an annual financial checkup.

Day 6: Update your filing system
Degree of Difficulty: Moderate

It's a wintry, blustery Saturday across much of the country, a perfect time to hunker down and tackle some of the items on your at-home to-do list. If organizing your home office is one of your goals, start by revisiting what paperwork you're saving. In my experience, most people save way more financial documents than they need to, and they do so out of habit more than anything else. Your shredder is your friend.

To help determine what to save and what to toss, think about which documents would be a true headache to replace if you needed to. (Do you like waiting in line or on hold with government offices? Didn't think so.) Social Security cards, car titles, and marriage, birth, death, and divorce documents, as well as the past seven years' worth of tax returns, fit the bill and therefore should either be stored offsite, in a safe-deposit box, or in an at-home fireproof box.

You'll also want to keep a running file at home to hold any documents related to the current year's tax return. For documents that relate to your household's ongoing financial management--including bank and investment statements and monthly bills--ask yourself whether managing those accounts online and retrieving information on an as-needed basis might not be more efficient than stashing all that financial paperwork at home. The answer is probably yes. And as I noted in Day 3's installment, transacting online also courts less identity-theft risk than does allowing personal information to pass through the mail. Before deciding to go paperless, check up on the thoroughness and ease of use of your financial-service providers' online information systems.

's installment, transacting online also courts less identity-theft risk than does allowing personal information to pass through the mail. Before deciding to go paperless, check up on the thoroughness and ease of use of your financial-service providers' online information systems.'s installment, transacting online also courts less identity-theft risk than does allowing personal information to pass through the mail. Before deciding to go paperless, check up on the thoroughness and ease of use of your financial-service providers' online information systems.

As you sort through your paperwork, you're apt to have come up with a big discard pile. I like to play it safe and shred anything with my name and address on it--if it has more personal information than that, such as an account number, put it in the "definitely shred" pile. Among the discard items that can go straight into the recycling bin are annual reports and prospectuses, warranties and manuals for stuff you no longer own, and marketing literature that accompanies bank and investment statements.

Plan to keep your document up to date, ideally as part of an annual financial checkup.

Day 7: Check up on your insurance coverage
Degree of Difficulty: Easy

Week 1 has been all about getting organized and finding your financial baselines--checking up on what assets you have now. But how good a job have you done protecting those assets? Use today to check up on the adequacy of your insurance coverage.

It goes without saying that everyone should obtain the best medical coverage they can afford, as well as coverage for real property such as home and autos. But if you're still working, your biggest asset is apt to be your own ability to earn a paycheck. One of the best ways to protect that income stream is to obtain disability coverage, which is designed to send you a percentage of your income if you become disabled. Your employer may offer cost-effective coverage; sign up to pay for it using aftertax dollars, meaning that your benefits will be tax-free.

Working people with dependents should also have life insurance, and stay-at-home parents should investigate it, too. Term life insurance is going to be the most cost-effective way to go; if your insurance agent recommends a more permanent type of policy, make sure you thoroughly understand the reasons why he or she finds this type of coverage preferable to a term policy.

Finally, look into obtaining an umbrella policy, or personal liability insurance.

These policies usually sit on top of your homeowners and auto policies, and cover you in case you're sued for an accident that occurs on your property. If you have contractors, housecleaners, babysitters, or dogwalkers on your property--and everyone does at one point in time or another--an umbrella policy is a must.

See More Articles by Christine Benz

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Need help picking up the pieces in this turbulent market? 30-Minute Money Solutions by Morningstar director of personal finance Christine Benz simplifies the daunting task of getting your financial house in order. Written for novice and experienced investors alike, this book offers manageable, step-by-step solutions for tackling money challenges and building a comprehensive financial plan in simple 30-minute increments. Learn more.
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