Many experts advise consumers to make it a point to perform a personal financial checkup annually or following a significant life event (such as a marriage, divorce, birth, or death). What exactly does that mean is the question.
Here are the primary subjects you should plan to cover to make sure you don’t forget anything important to your financial security.
Review Your Life Changes
Review any significant life changes that have occurred since your previous financial checkup to start. Have you recently retired, acquired a home, moved, gotten married or divorced, welcomed a new family member, received an inheritance, or changed jobs?
These life events can all have an impact on your entire financial situation. Think about any recent changes in your life and how they might effect your future plans as you read through the sections below.
Set or Reset Financial Goals
One illustration of a financial objective is putting aside enough money for retirement. Others include beginning your own business, saving for a down payment on a car or house, setting up an emergency fund, or doing anything else that needs money you don’t already have.
Analyze your progress toward your financial objectives and make necessary adjustments. After completing a goal, check it off the list and add a new one.
Sketch Out a Budget
Your budget serves as a guide for managing your recurring revenue and expenses. A budget needs to be monitored and modified as necessary.
Make sure you earn enough money to pay all of your regular costs and set aside a little extra for your longer-term financial objectives. Pen and paper, a computer spreadsheet, or any of the several free or affordable budgeting software tools are all viable options for maintaining your budget.
Assess Your Debt
Review your debt repayment progress, including credit card and loan balances. It could be time to change your spending habits if your debt, particularly high-interest credit card debt, is increasing so that the balances start to fall once more.
The avalanche method and the snowball method are two well-liked approaches to debt reduction. Examine the interest rates on all of your loans, including your home, your vehicle loan, and your credit cards. Take into account loan refinancing or transferring to a different credit card with a lower APR.
Check Your Credit Reports
Federal law mandates that each of the three major credit reporting companies (Equifax, Experian, and TransUnion) give you a free copy of your credit report once a year.
The official website for that reason, AnnualCreditReport.com, is where you may get your reports.
Check for mistakes and let us know right away if you notice any. Although credit reporting companies are not allowed to give you a free credit score, you can get one for a fair price. Free credit scores are offered by some banks, but not all of them are genuine FICO ratings, which are the ones that lenders most frequently utilize. Start taking action to raise your credit score if necessary.
Revisit Your Retirement Savings
You should assess your contributions to your company’s 401(k), if you have one, as part of your financial review. Make sure your contributions are at least sufficient to qualify for any company matching.
If your contribution limit has been reached, you might want to start a regular or Roth IRA. It might also be a good idea to rebalance your portfolio at this time, if necessary. In general, you should take less risk with your money as you get closer to retirement. Target-date funds, which automatically alter your risk exposure over time, are available in many 401(k) plans.
Consider Your Other Savings Goals
Review your progress toward any other savings targets, such as emergency, 529 plan for education savings, new car, or vacation fund. If you recently used money from your emergency fund to pay for home or auto repairs, try to replenish that money as soon as you can.
To ensure sure your investments are receiving a fair return, you should also verify the interest rates that are currently being offered. For instance, you might want to look into high-yield savings accounts.
Make Sure You’re Properly Insured
Your insurance requirements could alter over time. Make sure you have the right amount of life insurance, disability insurance (for income protection), renter’s insurance, homeowners insurance, and, if necessary for your region, flood insurance.
Reexamine your requirements for health insurance, including long-term care (LTC) insurance if you believe you may require it. To cut costs, look into changing insurance providers or increasing the deductibles on your house and auto coverage. By combining multiple plans with one provider, you can also save money.
Evaluate Your Estate Plan
Even if you have modest assets, you should have a plan in place for what would happen to them in the event of your passing. Review your will or trust to ensure that the executor, trustee, and anyone else to whom you’ve given power of attorney are your choices, and that you’re satisfied with them.
Check beneficiaries and distributions to make sure they still reflect your current intentions. Take a look at your living will and other advance decisions. Engage an estate planning lawyer if necessary to ensure that any modifications you make adhere to all relevant state and federal regulations.
And Don’t Forget Taxes
To ensure that the appropriate amount of taxes are being withheld from your paycheck, utilize the IRS’s online tax withholding estimator.
You should make sufficient quarterly estimated tax payments if you are self-employed (even part-time) or earn any other income from sources other than wages, such as a pension, from which taxes are not withheld. When you file your tax return for the year, this will prevent you from having to deal with a big cost and potential underpayment penalties.
You may want to schedule a meeting with a tax advisor as part of your financial checkup to plan a tax strategy.
What Is a Financial Checkup?
A financial checkup examines your present financial situation to ascertain how they are doing and whether you need to make any adjustments to the way you are managing them to stay on track.
When Do I Need a Financial Checkup?
Experts suggest conducting a financial checkup on an annual basis or after major life events, such as a marriage, divorce, birth, or death.
Can I Do a Financial Checkup by Myself?
If your finances aren’t particularly complicated, you should be able to perform a financial checkup on your own. However, the more complex your financial life is, the more likely that you’ll benefit by engaging a financial planner or other experts to assist you.
The Bottom Line
You can maintain progress toward your financial objectives by getting a financial checkup. You should start putting any modifications you’ve chosen into effect as soon as you can after finishing your checkup. After that, you’ll be able to unwind until it’s time to repeat the process.
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