Jump Start the New Year with a 4-Step Financial Checkup
Any time of year, but particularly the start of a new year, is a good time to reflect on how you are managing your finances and to consider whether you would benefit from some changes. Here’s a short checklist and some key questions you should ask yourself to help you better evaluate and meet your financial goals in 2017 and beyond.
1. Review your Savings Goals
What are my current short-term and long-term financial goals? Create specific, measurable and attainable goals. Write them down and post them where you will see them every day. Goals may include paying off a debt, buying a home or a car, or financing a child’s college education.
As for retirement savings, start by calculating how much money you will need for retirement, perhaps by using an online estimator. According to the Social Security Administration (SSA), most financial advisors say to aim for a combination of Social Security payments, pensions, and personal or retirement savings that equal at least 70 percent of your pre-retirement earnings in order to maintain your pre-retirement standard of living.
Am I taking advantage of automatic transfers to savings? Arranging for your bank or employer to automatically transfer funds into savings or retirement accounts is a great way to build savings. Review the amount transferred annually to see if you can do more.
Do I have enough money in an emergency savings fund? Figure out how much you would need to pay for three to six months of essential expenses ---housing, transportation, medical costs, and so on --- if you were to experience a temporary reduction in income. If you don’t have that much money in a savings account, start setting aside what you would need now.
2. Take Precautions
Am I adequately insured? Having enough life, health, disability, property and other insurance is essential to protect your finances from a major setback. Learn more at www.insureuonline.org, a website from the National Association of Insurance Commissioners as recommended by the Federal Deposit Insurance Corporation (FDIC).
3. Evaluate Your Spending
Do I have a good plan for how I spend my money? Start by listing how much money you make over a typical four-week period, what expenses you need to pay, and how much goes to savings and giving. Include any large expenses you pay annually or semiannually, such as taxes or insurance premiums. Pay attention to small expenses, from entertainment to lunch meals out, which can take a toll on your annual budget. What adjustments do you need to make?
4. Pay Off or Reduce Debt
Can I reduce my mortgage expenses? Ask a banker about your options for refinancing your mortgage to potentially reduce costs. You may also research the pros and cons of making additional payments to principal
--- to pay off the loan sooner --- or even paying off the mortgage outright.
How can I reduce the interest I’m paying on other debts? Any reduction of outstanding debts, particularly those that charge you the highest interest rate, will bring you savings in interest expenses. For example, look into paying all, or at least more, of your credit card balance.
As we ring in the New Year, take time now to carefully evaluate and fine-tune your financial goals to ensure a brighter, more prosperous 2017. Happy New Year!