Give yourself a financial check-up once a year
You change your oil in your car every 3000 miles, change the filter on your furnace every 3 months, and change the batteries in your smoke detectors twice a year – but when was the last time you gave your finances a complete check-up? Financial experts recommend that you look at your financial situation at least once a year to see how you are doing, especially as you prepare to add college expenses to your budget.
Here are the items you should look over for changes or updates.
Each year you should re-evaluate your household income and expenses to see where your money is going. The goal is to be able to pay down debt while saving money so you can eventually get ahead. If you have strayed from your budget since the last time you examined your finances, this is a good time to reset spending and saving priorities. Budget does not have to be a bad word: it will enable you to eventually, and intelligently, purchase what you want without going into debt.
Whether you have a retirement savings through your employer or your own 401(k) or IRA, or both, you should look at what you are currently contributing to these accounts and whether or not you can raise that percentage. Many times people will set up these accounts when they start working, and forget to add additional percentages to them as their income rises. Contributing as much as you can, up to the maximum allowed each year, will raise your retirement income substantially. Re-evaluate what you can afford to invest in these accounts each year so you are making the most of these tax-deferred accounts.
Saving for your retirement is wonderful, but you should also have a savings account that is easily accessed in case of an emergency. Financial experts have always suggested having at least 3 months income put aside for a rainy day so that is a good start for a goal. Each year you should evaluate your income versus your expenses and decide just how much you can put aside for your savings. The best course of action is to make the savings a priority and put that amount away first before letting your expenses get the best of you. Even if you are only able to put away 5 to 10% of your income each month, you will be surprised at how fast it adds up.
If you have a large investment portfolio you are no doubt looking at it constantly to get the most from your money. Many people, however, may invest money into a few areas and then never think about it again for months or years. You should look at your investments to see if you have your money working for you to your best advantage. Most investment counselors will set up an annual review with you, but if yours doesn’t then be sure to set up an appointment yourself. No matter how big or small you portfolio is, it is still your money and you need to understand what is happening with it on a regular basis.
Pay down credit card debt
Each year you should look at your credit card debt and decide how much you can afford in payments with the ultimate goal of eliminating it. Consolidate your debt onto low interest cards as much as possible and be sure to make the highest payments on the cards you pay the highest interest on. You can get out of credit card debt with some careful budgeting and a little willpower.
You should look at your mortgage to make sure you are getting the best possible interest rate with the safest loan. While you don’t want to refinance every year, you will want to check on interest rates periodically, especially if you have a high interest rate or an adjustable rate mortgage. Keep an eye on the market in case a better deal does come along sometime down the road.
Check your credit report
You should check your credit report often, but if time has slipped by since the last time you checked it, now is the time to do it. If you’ve canceled any credit cards over the past year you will want to make sure they have been taken off of your report. You will also want to check for signs of identity theft. Keeping your credit report clean will help you acquire lower interest rates when you go to the bank for a loan.
You should re-evaluate your insurance needs each year to make sure you are covered to the full extent. This includes life insurance, disability insurance and homeowners insurance. As your income grows and as you acquire more possessions you will need to adjust your insurance. Look over your policy each year when it is due and have your agent make adjustments as needed.
Be sure you are looking at your finances realistically as you set your yearly goals or re-adjust your savings and budget. Setting goals that are too high may keep you from sticking to them. By setting realistic goals and keeping an eye on your finances, you will be able to look ahead to a financially secure future.