Your Six-Step Financial Checkup
Keeping a close eye on essentials like your budget, your credit situation, and your retirement plans can help you stay financially healthy.
To maintain good physical health, it’s important to have an annual checkup with your doctor. But what about your financial fitness? Keeping a close eye on essentials like your budget, your credit situation, and your retirement plans can help you stay financially healthy. These basic steps can get you started:
1. Make a budget and review it regularly
If you don’t already have a household budget, now’s the time to make one, because a budget is as important to financial fitness as a diet is to physical fitness.1 Record all your monthly income sources, as well as fixed expenses like rent and loan payments. Estimate variable expenses like groceries and entertainment by reviewing past bank statements and credit card receipts. You should have enough left over each month to help you improve your situation by putting money into savings or paying down debts. If not, identify areas where you can realistically cut back.
Be sure to update your budget periodically. If you’ve been promoted, had a child, bought a new car, or experienced any other event that would impact your income or expenses, adjust your numbers accordingly. A little discipline in budgeting each month can pay off with big rewards in the long term.
2. Review your savings and emergency fund
Money that’s not immediately needed for day-to-day expenses can be put into a savings account so it will earn interest, but it’s also important to have an emergency fund that you can tap for major hits to your budget. Would you be prepared for a job loss or a large medical bill not covered by insurance? If you haven’t yet set up an emergency fund, make it a priority in your budget, even if you can only allocate $25 a month. Your goal should be to have at least a few months of income saved for unexpected expenses. If you already have an emergency fund in place, review it to make sure it’s still adequate for your current circumstances.
It’s also wise to set aside funds to plan for major expenses down the road. If you know your house will need a new roof in a couple of years, or your present car has 200,000 miles on it, establishing a bank account with funds to cover those future big-ticket items can really help out when the time comes to spend the money on them. Setting aside money for children’s college education also falls into this category, so make sure you’re planning for that future expense.2
3. Evaluate and pay down debt
Take some time to total up how much you owe (for your mortgage, car loans, credit cards, etc.) and what you’re paying in interest. You might be paying the bills each month without stopping to consider the big picture of your total debt load. Your ultimate objective should be to zero out your debts, but the only way to do that is to track them regularly and make it a priority to become debt-free. Look for ways to squeeze some money out of your budget each month to make extra payments on your highest-interest debts.
While you’re summarizing the debts you owe, look for opportunities to lower your interest rates. Consider applying for a lower-interest credit card or a debt consolidation loan to help you pay off high-interest debts. How's the interest rate on your mortgage? Refinancing your mortgage or switching to a different type of home loan may help you in the long term.
4. Check your credit report
Every year, you are guaranteed one free credit report from each of the three national bureaus: Equifax, Experian and TransUnion. Take advantage of these free reports and check them for any possible mistakes, such as a debt that was paid off but still appears as current.3 This can also alert you to fraud, in case someone is using your identity to apply for credit. Credit report errors can drag down your score and prevent you from getting a loan, or cause you to pay a higher than necessary interest rate.
5. Analyze your retirement funds
Aim to save 15 percent of your income for retirement. At the very least, contribute enough to your 401(k) plan from each paycheck to equal the amount matched by your employer. If your employer doesn't have a 401(k) plan, or if you’re self-employed, set up an IRA on your own and budget for regular contributions to it.
At least once a year, review your retirement savings to make sure the level is consistent with your long-term goals. If you haven’t reviewed your retirement accounts lately, take a few minutes to see if they need rebalancing so you’re comfortable with both the rate of return and your risk tolerance. Consult a financial professional if you need help setting up a retirement plan or evaluating your current arrangements.
6. Review your banking products
Schedule an appointment to talk to your banker to see if the financial products you’re using are the best fit for your present circumstances. You may find that you qualify for a bank account with better rates or lower fees, or a credit card with rewards or cash back.
· Make sure you have sufficient protection from overdrafts on your checking account, and sign up for alerts that will notify you of possible fraud on your credit cards.
· Sign up for online and mobile banking to help you save time and keep track of your finances whenever you want, wherever you are.
· By signing up for automatic bill pay, so money is withdrawn from your checking account whenever an e-bill arrives, or on the same day each month for recurring bills like insurance or mortgage payments.
· Converting to paperless bank statements can help keep your house cleaner and more organized (physically and financially).
· If you have open accounts that you rarely use, consider closing them to streamline your finances.
After you’ve had your financial checkup, congratulate yourself for being fiscally responsible. But remember, it’s important to conduct reviews on a regular basis in order to maintain your financial health.
1. These Two Cents articles can help you set up your budget: https://www.nsbank.com/blog/two-cents-blog/articles/2017/october/ten-items-to-include-in-your-budget/ and https://www.nsbank.com/blog/two-cents-blog/articles/2017/june/run-your-household-like-a-business/
2. This Two Cents article explains how you can set aside money for college with tax-advantaged 529 plans. https://www.nsbank.com/blog/two-cents-blog/articles/2017/January/nevada-529-college-savings-plans/
3. This Two Cents article explains why and how to check your credit report: https://www.nsbank.com/blog/two-cents-blog/articles/2015/april/when-and-how-to-check-your-credit-report/
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC