Much of your financial health depends on practicing good financial habits throughout the year. Balancing your checkbook and paying off credit card balances, for example, must be done every month to avoid unnecessary bank fees and high interest rates. But, just as once a year you spring-clean your home by pulling out the ladder and dusting ornamental treasures on the highest display shelves, once a year, there are certain steps you must take to protect yourself financially.
It’s easy to let these tasks slide from year to year because you do them so infrequently, but that mistake can be very costly. The most important of these once-yearly financial spring-cleaning steps, for example, is absolutely essential: an insurance checkup. Reviewing and updating your insurance is more important than shredding old statements, bumping up 401k contributions, or organizing tax folders for the next fiscal year, because it protects you and your family from potentially catastrophic losses.
Consider, for example:
- Do you have identity theft coverage? The incidence of identity theft is has grown tremendously in recent years. For a small premium ($25-60 per year) you can purchase credit monitoring and reimbursement for the costs associated with repairing your credit history if you become a victim.
- Do you have umbrella liability coverage? If you are a parent of teenage children, you may someday be subject to major claims and lawsuits related to driving accidents or alcohol-laced teen parties in the basement when you’re out of town. The extra liability coverage will protect your assets beyond what your homeowners and auto policies already do.
- Review and update your homeowners insurance. Have you had an addition built onto your home in the past year? Did you completely renovate your kitchen or install a full-featured home theater? If so, your existing homeowners policy may not reflect the current value of your home. Reviewing and adjusting your coverage immediately will save you a lot of money in case the unexpected happens.
When we think about our taking care of our “finances,” we often think of growing our savings, retirement, or investment accounts. But the truth is, your money is so much more than your savings or your investments. Take the time once a year to protect your assets and your future from liability. It may be the best investment you make all year.