Getting An Annual Financial Checkup

As the new year begins, many people resolve to improve some aspect of themselves during the coming year. Resolutions to diet, exercise, or read more books are common. In our offices we see a lot of people who resolve to pay off debts or to save more money.

Resolving to pay down debt is a good choice for 2018, as recent news revealed that credit card debt has hit a new record. The Federal Reserve announced this week that credit card debt hit an all-time high in November 2017 and credit card delinquencies are on the rise. This new record high credit card use is seen by some as a sign of confidence in the economy, but more debt is more potential for financial hardship. We’re encouraging consumers to respond to this news by resolving to save and reduce credit card debt.

We want everyone to succeed in these resolutions, but too many people jump in without preparing for the change they want to make. Our best advice is that anyone looking to reduce debt or save more money in the coming year should perform an annual financial checkup first.

Here are some essential steps to take annually to ensure good financial health:

1. Track Your Spending

Spend a month keeping track of every cent you spend. This tracking is essential for all of your following steps; it’s the diagnosis part of your checkup. Tracking expenses will show you where your money is truly going, and it is a guarantee that it won’t be where you predict. You will find some areas where you are spending more than you realized.

You can use a computer to do this tracking, or just keep all receipts in a shoebox and tally them at the end of the month. If you do that, be sure to keep every receipt, and if you don’t get one for a transaction, jot down the expense on a post-it note and store it with your other receipts. Track everything, even when you put a dollar in a vending machine; you want to know exactly how much you’re spending on every category when you add it all up.

2. Write Down Your Goals

You’re 42% more likely to succeed if you put your financial goals in writing, and having that written reminder will help keep you on track. It’s not enough to save money; you have to know what you’re saving for. Only then will you have the motivation to save and the discipline to leave your savings intact until you can realize your written goals.

The first goal we recommend for everyone is to create an emergency savings fund. Get at least 3 (but preferably 9) months’ worth of income into savings so you can get through a future crisis. Once you’ve done that, you’re secure enough to start saving for things you want, like vacations. Of course, if you have kids who are college-bound someday, or you want to become a homeowner, it’ll be easy to write down what you’re saving for. If this isn’t the first year you’ve set written goals, evaluate your progress toward your goals and make adjustments as needed.

3. Budget

Once you’ve tracked spending, only then can you create a new budget you can live with. Use what you have learned to make wise changes that won’t be too painful.

This is where most people go wrong. They jump into a new lifestyle without doing the necessary prep work. Spending time to track and budget first will make you more likely to succeed.

We have several free budgeting courses in our FIT Academy, and you can download a free copy of our Power of Paycheck Planning workbook to help you get started.

4. Assess Your Debts

Just like going to a doctor or dentist for their physical health, people need to talk to a professional at least once per year for financial advice. Call a financial coach for a free session. Review your debts, especially your credit cards, and come up with a plan to become debt free.

You should also look at your other major debts. Is your mortgage loan working for you, or do you think you could refinance into a better interest rate? Can a free HUD-approved housing counselor help you avoid foreclosure keep your mortgage on track? Is your car worth less than you owe on it? Can you accelerate the payoff of your auto loan?

5. Do Some Financial Planning

You may have a Certified Financial Planner working for you to ensure your retirement is adequately funded. If so, then that person has likely already contacted your for an annual checkup. If you don’t have enough going into retirement savings to justify working with a financial planner, you can still do some planning on your own.

Download our free Basics of Financial Planning workbook, and talk to a financial coach about your goals. Your first step will be to track spending and budget, but once you’re allocating your funds, you want to ensure you have some money set aside for the future. Don’t neglect this, no matter what your age—it’s never too early or too late to start saving toward retirement.

6. Check Your Annual Credit Reports

Annualcreditreport.com is the place to get your free credit reports yearly. Now is the time to check one of them and make sure everything looks good. You want to review your credit reports first for accuracy, and correct any errors you find.

Start with one of the three credit reports (TransUnion, Equifax, or Experian), and if you find any major problems, go ahead and request free copies of the other two. If the report looks okay, wait 4 months and then request one of the other reports and review it. Then request the last of the three reports 4 months later. This way, you get a free credit report every 4 months and you can be sure you will find out about and problems relatively quickly.

7. Taxes

Don’t wait until tax time; prepare your return If you have a refund coming, get it soon so you can put it to work toward your savings goals. If you owe money to the IRS, you can wait to file until you’ve saved up the money you need. Then be sure to adjust your withholding to make sure you don’t underpay or overpay too much this year. Proper planning now will help you avoid problems with taxes in the future.

Starting early on your taxes gives you more time to ensure you’re taking all of the deductions you can get. As you’re planning your savings, think about the tax implications—do you have a 529 plan for education savings?

If you use a professional tax preparation service, get to them soon; they will get busier and busier as tax season approaches.

8. Insurance

It’s important to understand the basics of insurance, and become insured where necessary. You need adequate coverage, and a good independent insurance agent can review your coverage and help you find ways to save money on your premiums. Do you need to adjust your deductibles? Are you paying for coverage you don’t need? Are you buying the right kind of auto insurance?

Part of being properly insured is estate planning. Who are the beneficiaries of your insurance policies? Do you have the right kind of life insurance? Are your insurance and estate plans impacted by changes to tax laws?

If all these steps seem overwhelming, don’t panic! You can get trustworthy professional advice on all of these questions from a nonprofit financial coach. We’re here for you any time you need us.

Whatever you do, don’t jump into a new year with a completely new financial lifestyle without doing the necessary advance work: get coaching, track spending, and create a budget first. Call us and we’ll help you create a plan for achieving good financial health.

Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.
Melinda Opperman

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovate ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry.