So often, we go through the year without really knowing how we are doing financially. This happens even if we manage to keep all the bills paid. When an emergency arises, we find out we are far from prepared. This is a major reason to do a financial checkup regularly.
The first thing to do is set a time you will remember to sit down and go through your finances every year. Right after New Year’s is a good time as it will help you start the year knowing how you will handle your finances through the year. At the time you set, make two lists. One for short term financial goals and the other for long term financial goals. Your financial goals may consist of such things as saving for your child’s college expenses, paying off outstanding debts, buying a car or home or saving for retirement. Also make a list of all your regular monthly bills so these can be evaluated and incorporated into your planning.
Evaluate your monthly income to determine how much is needed to cover your monthly living expenses and how much you can put into savings. If you have not already done so, look into having money transferred directly into your savings, either by your employer or your bank. If this is done automatically, you will not tempted to spend it instead of moving it to savings. If you already have money automatically deposited to savings, consider the possibility of increasing it as much as is feasible.
Part of your financial checkup should include planning for more than one savings account. One savings account should be maintained for emergencies. This account would cover such expenses as something unexpected like replacing a major appliance that breaks down or paying some of your living expenses if you have a short term decrease in income. It is best to have the means to cover these without borrowing money. You want to have at least the equivalent of three months’ income in this account though six months is best.
Another important savings instrument to have is a retirement account. An IRA is a good one to have as contributions have tax advantages and since early withdrawals are penalized, you are less likely to use it for other purposes. Look into various options for retirement accounts and choose the one that is best for you. If you have children, having a savings account especially for their college education is almost a requirement these days. Set up this account as early as possible. The younger your children are when you start saving, the smaller the deposits to it need to be.
Other things to include in your financial checkup are evaluating all your insurance policies. Make sure you have enough coverage but are not over insured. Consider calling your insurance agent to see if you can get discounts on your policies. If you have policies with different companies, consolidating them could mean savings on premiums. Also compare a new quote from your current insurance company with quotes from other companies to ensure you are getting the best coverage at the best price.