The arrival of another year typically motivates us to rid ourselves of bad habits and pick up a few newer, healthier, or more productive ones. Many of us vow to improve our employment situation, our relationships, our surroundings, and ourselves. Saving money and getting out of debt are often mentioned as two goals that are at the top of New Year’s Resolution lists. However, just as you would visit your doctor for a physical evaluation before instituting any new fitness regime, the same goes for your finances. Before striving to improve your fiscal state, a proper checkup is vital.
The American Consumer Credit Counseling agency, or ACCC, is a nonprofit organization that was founded more than twenty years ago. The agency’s goal is: “To empower consumers to achieve financial health through education, counseling, and debt management.” Here are some of the ACCC’s suggested steps for ensuring that you pass your next financial checkup with flying colors!
Get Your Ducks In a Row-That is, do a thorough assessment of where you stand. Know exactly how much money is coming in and how much is going out. If you do not currently keep detailed financial records, start immediately by recording your income and expenses. Fortunately there are hundreds of excellent free online tools for setting up a comprehensive financial plan. Before using one, however, make sure it is a secure site. Here’s one good example: Mint.com
In addition to gaining insight into your current situation, establishing a plan also enables you to look ahead towards activities such as making investments, saving for college tuition, and retirement.
Know Your Credit Score-Thanks to the Fair and Accurate Credit Transactions Act, consumers are able to obtain a free credit report annually. Having a look at your credit report enables you to see an accurate picture of your financial state of affairs. Check on yours by contacting one of the following credit bureaus:
Or visit www.annualcreditreport.com.
If you discover any inaccuracies whatsoever, take action and dispute the claim. Here’s a link for how to address discrepancies, from the Federal Trade Commission’s site: http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports
Keep Your Paperwork Secure-Have a safe or fireproof document box in which to store all of the paperwork associated with your income, expenses, insurance policies, marriage and birth certificates, passports, deeds, wills, trusts, and titles to all vehicles. Have copies made and keep those with your attorney or in a bank safety deposit box.
Set Long and Short-Term Financial Goals-The ACCC suggests following the SMART rules for this step. “Goals should be Specific, Measurable, Achievable, Realistic and Timely.” For example:
Specific-I will pay off my credit card balance each month.
Measurable-I will cancel my gym membership to help save towards my credit card payment.
Achievable-I can do without it and exercise at home, or at the park.
Realistic-I can cut corners and do without some things such as eating out and entertainment. For example, I can cook at home with friends, seek out free events and use the library to rent DVDs, CDs, and books for free.
Timely-My credit card balance is $5,000. By cutting back on extras, my goal is to pay it off in 30 months by setting aside $166 monthly and more when possible.
The above-mentioned example is a short-term goal. Mid-term goals are considered possible in 2 to 5 years and long-term goals are established for bigger objectives that could require more than 5 years to accomplish.
Where Does the Money Go?-Any financial checkup will require a hard look at spending habits. Use a calendar or notebook, along with your check registry, and monthly bank and credit card statements to make sure it is thorough. Scrutinizing where your hard-earned money goes in a 30 or 60-day period is quite eye opening! A free software tool such as this can be very helpful: http://www.myspendingplan.com/
Establish a Budget-When figuring out how much you have to spend each month, note which items are fixed and which are flexible. For example, the mortgage or rent is fixed, and entertainment, clothing, and food is flexible. Examine your income and expenses to determine what, if anything could be reduced. Could you do without cable, the lawn service, or trips to the salon? Recognizing that you can do without certain things can set you up for success in meeting other financial goals such as saving and investing. Devising an effective budget will require honesty and usually a few sacrifices. It also involves constant revision to reflect any changes in income or expenses.