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Financial wellness check: Are you staying fiscally fit?

By Carl Trevison and Stephen Bearce

Understanding the current health of your finances starts with having a solid plan in place, but it depends on following the plan so 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 also help you check that your plan is working for you.

Where to start? Here, John Knowles, lead strategy consultant of Retirement Solutions at Wells Fargo Advisors, shares six questions that can 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 have the opportunity to start earning returns as well.

Taking full advantage of your employer’s retirement plan — typically a 401(k) — is a good place to start. That includes contributing enough to qualify for any potential company match, something Knowles stressed to his daughter when she entered the workforce. “If the company is going to match you up to 5%, put 5% in at least,” he says. Those nearing retirement may want to explore “catch up” contributions that allow you to add more to certain retirement accounts.

Are your estate planning documents up to date?

Estate planning documents should include a will, 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, such as a 529 account, a trust, or a Roth IRA for kids.

Knowles says talking to loved ones is an essential part of estate planning. “Having those discussions, writing down your wishes, and then formalizing that through official documents is key,” he says.

Do you have an emergency fund?

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 kick in,” he says. “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 or grandchild’s college education, consider starting to save beginning the day they’re born, Knowles says. “Make college savings a part of your monthly budget just like your retirement savings,” he advises. 529 plans and other college savings vehicles are worth considering.

Are you being smart about taxes?

With accounts such as 401(k)s and IRAs, the money has the potential to grow tax-deferred. That means you pay taxes on the funds only when you withdraw 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,” he says. “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 may help reduce it.”

Are you getting advice from a professional advisor on a regular basis?

Having a financial wellness checkup with a financial advisor and other professionals on topics such as taxes, estate planning, and insurance is like getting health input from a doctor, Knowles says.

A financial advisor 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. “Doctors don’t ask you what your blood pressure is, they find out,” he says. “Once they have all the data they need, they make a recommendation. In this case, it’s your financial advisor prescribing what can help improve your financial well-being after taking all the necessary measurements.

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.

Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and underwritten by non-affiliated insurance companies. Not available in all states.

This article was written by/for Wells Fargo Advisors and provided courtesy of Carl M. Trevisan, Managing Director-Investments and Stephen M. Bearce, First Vice President- Investments in Alexandria, VA at 800-247-8602.

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