Statements, reminders, updates, forecasts and tax returns:
All of these financial records proliferate like spring dandelions. As
you’re tidying up in the aftermath of income tax season, consider
creating a "dashboard" of key metrics. A dashboard organizes these
metrics and puts them in one place, usually on a spreadsheet, so you can easily
track how your financial life is progressing. Financial
advisors say a useful dashboard should have no more than nine
categories, or columns, and should be contained to a single page or screen. If
you want to add more detail, add additional pages with supporting calculators
and documentation, instead of extending the first page of your spreadsheet into
infinity. You’ll want to categorize your key headers into these buckets,
advisors say:
- Savings and investments
- Debt reduction
- Life goals and transitions
What not to put on the dashboard, according to
financial advisors: short-term savings. By definition, that pot of money
is available as needed, and the point of the dashboard is to track long-term
progress. Expect to update the dashboard at least a couple of times a
year, probably when you have a pile of statements to review, advisors say.
Alternatively, if you have a major life transition, such as going back to
work, getting married or you have medical expenses, you will want to
adjust the dashboard accordingly.
Here’s how to design
a basic dashboard.
Track how much you are saving and how those investments are
growing in two separate columns, advises Robert Laura, president of Synergos
Financial Group, based in Brighton, Michigan. Create a separate column for your 401(k)
contributions and the growth of your 401(k) account. Park other
investments in their own columns, grouped by category (one column for
mutual funds, another for alternative investments such as gold, and so on),
advisors say. This lets you see how each category is contributing, so you
are less likely to fixate on a certain holding within that category.
Integrate a couple of forecasting tools that can help you
project the future value of today’s portfolio. One to consider is the CoRi
Retirement Index offered by BlackRock. Another tool that can help you estimate
what you’ll need is the “Choose to Save” estimator, recommended by Joseph
Montanaro, a certified financial planner on staff with insurance firm USAA.
Castille also recommends using a Social Security calculator so you can track
the likely income from that source, and as well as a subtotal so you can see
how it all adds up to regular income after you are retired.
Most people want to eliminate
debt before they retire – typically the mortgage, although consumer
and student debt are also targets for elimination. Watching your outstanding
debt evaporate is not only satisfying, but it also helps you see how the
overall picture is shifting as you can direct more money to saving once certain
debts are gone, Montanaro says. Finally, include a couple of columns
for professional and life-stage
milestones as your circumstances change.
Ramping up a side venture to a retirement occupation
takes time, effort and money, Laura points out. When you put your
entrepreneurial effort in the context of your overall savings goals and likely
retirement income, you can see how much you will need that side income and how
much effort it requires before you retire. If you aim to buy a vacation home,
get plastic surgery or indulge in another costly retirement-transition expense,
save for that separately so you can insulate your
core portfolio from your splurge, Laura adds.
Finally, top off your dashboard with some virtual stickers.
Montanaro suggests inserting photos of grandchildren, golf or other images in
the headers, whatever triggers your aspirations, to make your dashboard
inspirational as well as functional.
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