Money Smarts Blog

Originally posted March 22, 2017

You take the time to get your house in order every spring, and you should do the same for your financial house. An annual checkup on your finances can keep you from making costly mistakes later. No mops or buckets required – just some quality time with your bank statements, and maybe an adviser.

What should you ask yourself during your financial checkup? Here are eight essential questions to get you started.

1. Do I have a budget? Is it working?

If you’re just paying your bills and swiping your card without a plan every month, you need a budget. We like the envelope method. If you already have a budget, it never hurts to give it a once-over. To get started, ask yourself a couple questions:

• Do I have enough income to cover my expenses and save every month, or should I spend less?
• Do I have enough saved to cover a large unexpected expense?
• Do I want to make a large purchase or go on vacation this year?

When you’ve figured out the answers, find the budget style that works best for you and get started.

2. Am I properly insured?

Every stage in life requires a different amount of insurance.

If you’re an unmarried college student, you probably don’t need much more than renters insurance and auto.

If you're married or own your own home, you might need to add life insurance on top of your homeowners and other policies.

If you’re unsure about your insurance coverage, it helps to speak with a broker to make sure you have only the coverage you need – no more, no less.

3. Is my debt under control?

Are you struggling to pay all of your debt every month? Are you using credit cards for everyday purchases (like gas and groceries) without paying the balance in full every month?

If the answer is yes, or your debt has increased significantly in the past year, that’s a good sign that you need to fix your budget and reduce your spending. See #1.

Additionally, if you have a lot of revolving or high interest debt, consolidation might be helpful. If you can get a lower average interest rate, you’ll end up paying less over time and may even have a lower monthly payment.

4. Am I saving enough for retirement?

Your 401(k) and other retirement vehicles are not set-it-and-forget-it. Sometimes maxing out your employer match may not be enough. You should evaluate your retirement accounts every year to ensure the amount you’re saving aligns with your retirement goals. Experts recommend putting away at least 15 percent of your pretax income.

As you get older, it’s also important to consider whether you have the right mix of assets. An advisor can help you find the right balance.

5. Is there enough in my emergency fund?

Generally, we recommend having 3-9 months’ salary saved in the case of a layoff, job loss, or really big unexpected expense. Exactly how much you need depends on how much you spend.

If you make $6,000 a month, but only spend $2,000, you can get by with a much smaller emergency fund than someone who spends most of their paycheck.

Take a look at your budget, and really think about how much it would take to support your family if you lost your income. If you’re not meeting that goal, it’s time to increase savings and decrease spending.

If you don’t have an emergency fund at all, aim to tuck away at least $1,000 to start.

6. Do I need to change my tax withholdings?

If you got a big tax refund this year, you might want to consider reducing your withholdings instead of giving the government an interest-free loan. That's money that could be going right into your savings account instead of theirs.

Now’s also a good time to make sure you’re getting the most out of tax deductions and credits for retirement and education savings, dependent care,  medical expenses and charitable donations.

7. What’s on my credit report?

You should review your credit report once a year. In fact, federal law requires the three big reporting bureaus, Equifax, Experian and Transunion, to provide consumers with a free credit report every year. You can get it at annualcreditreport.com.

Compare the three reports, make sure they match and there aren’t any big surprises. If you find an error, you should notify both the creditor and the credit reporting company in writing.

8. Is my estate plan what I want it to be?

It might sound a bit morbid, but you should have a plan for your finances after you die. Marriage, divorce and having kids will all probably have an effect on your estate plan. Bare minimum, you should have a will and make sure that it accounts for your wishes. Make sure you’ve designated an executor of the will.

Now is also a good time to make any changes to your beneficiaries on life insurance and other accounts.

If you feel confident about all eight things, your financial house is in pretty good shape. Need some help? Stop by any IHMVCU location for a free financial checkup.