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Your Money Checklist

Pilots use checklists all the time; here's how you can do the same for your finances.

3,500 feet above the sleepy small towns of Maine’s Oxford Hills, I nudged the yoke on the rickety old Cessna 152 and banked into a lazy left turn back toward the airport after the day’s flying lesson. As much fun as I was having, I was relieved the hour was almost done—simultaneously keeping track of altitude, airspeed, heading and other factors is mentally exhausting, even more so when you’re just learning. But little did I know, my lesson wasn’t over yet.

Mid-turn, my flight instructor yanked the aircraft’s throttle back and the small plane’s lone propeller slowed as the engine came to an idle.

“You just lost your engine,” he said. “What are you going to do?”

My instincts told me to reach over and try the ignition; try to restart. Or maybe call “MAYDAY! MAYDAY!” over the radio.

But both of those instincts were wrong.

If your plane loses its engine, the first thing you want to do is find a place to land. Then you want to adjust your airspeed to give you the most gliding time to the ground. Only then should you attempt things like restarting the engine, switching to a reserve fuel tank, setting an emergency transponder code, and calling for help.

That’s a lot to remember on a good day, never mind when you’re minutes away from a crash landing. And this is in a tiny, uber-simple 40-year old trainer aircraft. Imagine the procedures in a modern airliner.

This is why pilots use checklists.

Aircraft are too complicated—and the potential cost of an error too high—to be left to pilots’ memory.

As I progressed in my flying lessons, I learned to use checklists for everything: takeoff, landing, and, of course, simulated emergencies. Not only would the checklist remind me of what to do first (find a place to land), it would ensure I didn’t miss a step. (Don’t forget to try to restart the engine before plowing into a corn field!) As it would turn out, checklists have intriguing uses far outside the cockpit.

I’m not telling you this story to lure you into learning to fly. As a financial decision, using a $3,500 credit card balance transfer check to earn my pilot’s license at 21 ranks among my most absurd. But unlike the countless Papa John’s pizzas and liters of bottom-shelf vodka I also financed during college, I can’t say I regret the learning to fly experience.

Today I want to talk about how checklists can help you stay on track with your financial goals. 

IN PRAISE OF CHECKLISTS

Atul Gawande is a surgeon, Harvard Medical School professor, and author. His most recent book, The Checklist Manifesto: How to Get Things Right got its start as this New Yorker article in which he explains the origins of the checklist in aviation before proceeding to document how—if more widely used in medicine—checklists could save the average hospital countless patient lives and millions of dollars every year.

In The New Yorker piece, Gawande makes this observation about how checklists helped an intensive care unit reduce the number of infections related to central lines:

The checklists provided two main benefits…First, they helped with memory recall, especially with mundane matters that are easily overlooked in patients undergoing more drastic events. (When you’re worrying about what treatment to give a woman who won’t stop seizing, it’s hard to remember to make sure that the head of her bed is in the right position.) A second effect was to make explicit the minimum, expected steps in complex processes…Checklists established a higher standard of baseline performance.

These observations are a bit obvious, but the results Gawande cites are eye-popping. The simple fact is that checklists save lives. So I postulate: If checklists can save lives, surely they can save money.

A CHECKLIST FOR YOUR FINANCES

As much as I and other financial bloggers try to simplify financial matters, the truth is: money is complicated. No two people’s financial situations are alike, and every day we’re overwhelmed with competing financial goals and ways to spend or save our cash. And investing? Forget about it. There are over 10,000 mutual funds alone, never mind stocks, ETFs, bonds, and countless other investment vehicles. It’s no wonder so many of you just want somebody to tell you what to do!

I can’t do a personalized financial checkup for everybody, but what I can do is provide a checklist to help you periodically review the state of your finances. Take a look, and let me know how you do.

If you prefer, here is a PDF version to download »

Emergency Fund

  • I have enough cash saved in a separate savings account to get me through six months of living expenses in the event I lost my income.
  • I’m earning the best interest rate possible on this money by taking advantage of an online savings account.
  • I don’t tap my emergency fund for “non emergencies” like months I accidentally spend too much on credit cards.

Credit Card Debt

  • I am not going into new credit card debt. I pay off my new balance in full every month.
  • If in debt, I know my interest rate.
  • If in debt, I have tried to lower my interest rate either by calling my card issuer or transferring the balance.
  • If in debt, I have a plan to pay off this credit card debt before putting money to other goals.
  • If not in debt, I take advantage of credit card rewards.
  • If not in debt, I understand my card’s fee schedule.

Student Loans

  • I understand how much student loan debt I have.
  • I know the interest rate, term, payment, and owner of each of my student loans.
  • I have my student loans set to automatic payment each month so I don’t miss a payment.

Saving

  • I know what one thing I’m saving for next.
  • I contribute at least enough to my employer’s 401(k) or other retirement plan to take advantage of any matching.
  • If eligible, I contribute up to $5,000 to a Roth IRA.
  • I have a certain amount of savings on “auto pilot”. In other words, I transfer or direct deposit money automatically to a savings account each week or pay period.

Investing

  • My money is invested in a mix of stocks and bonds appropriate for my age and risk tolerance.
  • I understand the fees associated with all of my investments and am comfortable with them.
  • I am taking advantage of tax advantaged accounts (IRAs, 529s, etc. before investing in taxable accounts).
  • I do not have idle cash that should be invested.
  • I have decided on an investing strategy that I will stick to even when the markets are volatile.

Expenses

  • I know what I spend my money on each month.
  • I don’t have any unused subscriptions that I could have money on but I’m too lazy to cancel.
  • My monthly housing payment is less than 30% of my gross income.
  • I don’t have a car payment.
  • If a homeowner, I have investigated refinancing at lower interest rates to save money in the long term.
  • I make lists and look for coupons to save money on routine shopping trips.
  • I plan big purchases and wait for sales to buy.

Credit

  • I know my current credit score, at least roughly.
  • I have checked my credit reports at least once in the last year for accuracy.
  • I auto-pay or otherwise have a system for paying all monthly bills on time.
  • I have 2-3 credit cards open for building good credit, even if I don’t use them every month.

Relationships

  • I regularly have open conversations about money with my partner.
  • My partner and I know each other’s net worth and credit scores.
  • My partner and I have joint financial goals.

Income

  • I have a second stream of income or a plan for diversifying my income.
  • I’m actively learning or increasing my skills and value to my employer.
  • I’m actively building my network.

Other

  • If I have children or a dependent spouse, I have level term life insurance.

HOW DID YOU DO?

How’d you do? Did anything surprise you? Is there anything you would add to this checklist? Let me know in a comment.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. David,

    Great post. I loved the flight instruction and hospital intro.

    The checklist is great.

    One financial option that tends to muddy the retirement savings water a bit is the Roth 401k option that many companies are now offering. The main questions that come up as a result of this option are:
    1) Should I allocate my retirement savings to Roth, Traditional 401k or both?
    2) Does this make the Roth IRA investment option less important?
    3) How do I determine the right mix of Roth 401k, Traditional 401k and Roth IRA?

    Appreciate your thoughts and how this would apply to the Savings section of the checklist.

    • David Weliver says:

      Thanks Sean. You’re right that Roth 401ks deserve a thoughtful post. Consider it added to my list. When I started blogging five years ago so few employers offered them but now it seems to be a lot more common. For many >30 I think Roth 401ks should be the first step in a retirement plan, but as you point out, it’s not that easy.

      The old thinking went that as you ramp up retirement savings, you first contribute to a traditional 401(k) enough to take advantage of any employer match, then you work on maxing out a Roth IRA, then go back to upping the 401(k) contributions.

      I think for 90% + of 20somethings, Roth accounts are the better bet than traditional; the exception is if you’re a really high earner and already in a high tax bracket. And although IRAs offer more investment options than more limited 401(k)s, for simplicity sake most people will be better off maxing a Roth 401(k) if it’s available—the fact that the money is deducted from your paycheck is more powerful than many realize. Anyway, that’s a fast bumbling reply, but hopefully I can whip something better together soon.

      • David,

        I agree that something useful would be the topic of Roth 401k vs. traditional, as well as other tax efficient vehicles such as HSA accounts, as people who are high earners could benefit from the potential tax deductions.

        • I agree, I am 26 and a high earner ($250K+) and have switched over completely to my company’s Roth 401k since they made the option available in November of last year. But after looking at David’s logic behind it, am second-guessing my decision to do so. A comparison between the two would be greatly appreciated!

  2. this is an excellent tool! thanks!

  3. I am a Financial Coach (quite new actually) and I am always looking for learning tools not just for my students/clients but for me as well. I have found that I do NOT know everything when it comes to managing your personal finances so when I come across a website/blog like this that offers learning tools I am way excited! So–thank you! If I can analyze my own financial situation and put in place strategies to tear down barriers then I can coach those in need with much more accuracy!

  4. This is great! I was pleasantly surprised to see that I could check “yes” to everything except the credit card debt ones because I have no CC debt! Lists like this are such a great reminder of why it’s important to stay on top of your finances. Thanks for developing this.

  5. Hey, I really enjoy these emails. Keep ‘em up! They’re very helpful! =)

  6. Michael Sun says:

    Great article – thanks!

  7. Great checklist. I’m a new follower and am glad I stumbled across this site. Thanks!

  8. I like the concept of a checklist. Ofcourse, I would think every person’s numbers would be different from the other’s. Eg: 30% of income as homemortgage….well..maybe if it was a 15 year loan…else it is too high. You left out education and other expenses for kids. But still a very good concept.

  9. I would also add in a will or living trust to the checklist. I’m guessing this would go under the other category. I like the list though. Good stuff! I’d like to see more on savings goals and possibly putting some order around what to save for first, ie next car, home updates/large maintenance, fun account/travel, child’s college, etc.

    • That’s a good article idea. Wills/Trusts. What kind of will or trust do we need to set up before/close to 30? I would think most people would put this off until they’re “older”, but you probably need something in place if you have any amount of assets or dependents.

  10. Awesome sauce!

  11. One HUGE thing your missing. Unless I’m completely blind, I saw nothing regarding disability coverage. I would hope that would be something provided through your employer but if someone may be self-employed or perhaps their employer’s very small and doesn’t provide it, you must always protect your income because as you’ve shown, this is the most important piece of the pie. Disability coverage is vital, especially in your 20′s because, if acquired through an individual policy, you should fly right through medical underwriting as you are at your healthiest locking in a lower monthly premium as well.

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