Financial Health Checkup

1/12/12 Now that the holiday season has come to a close, we now enter the season of top 10 lists! The time of year when we reflect on what we have accomplished, how we progressed toward goals (or not) and reflection on critical things we need to do in the new year. For your finances, let’s scrap the top 10 and keep a simple focus on the five most critical items you should be checking up on as we head into the New Year. Consider this your financial physical. At the end, determine if you are heading into 2012 financially fit or in need of a few resolutions to improve your situation.

Answer the following five questions with YES or NO:
  1. Is your savings account balance larger than your credit card balance?
  2. Have you checked your credit score with the 3 major reporting agencies (Equifax, Experian and Transunion) in the past 6 months and is your score above 650?
  3. Have you checked all of your insurance policies to ensure they are up to date and being carried at the right value? (homeowners, renters, life, disability, automobile, health)
  4. Did you save for yourself or your children at least 5% of your net income this year toward retirement, college funds, or a rainy day? (if you bring home $50,000/year that is $2500 in savings)
  5.  Are you certain that you have no life changing events ahead that may impact your financial picture? Examples include: marriage, divorce, child graduating high school, retiring, returning family member from military deployment, going back to school, starting a business, moving/relocation, mortgage rate adjustment

How did you do on your Financial Physical?

If you answered YES to all of the questions above, you are in tiptop shape going into 2012! Let’s be sure you stay in good health. Yes, you can still do more by staying focused on saving, particularly for your retirement. Consider increasing contributions in 2012 to the maximum levels. If you have children, look into a 529-college savings plan for them. In addition, be sure to have your overall tax position reviewed to ensure you are getting top dollar during tax season and up to date on all of the tax code changes that may impact you. Consult a tax advisor if you are able to do so.

If you answered three out of the five questions with YES, you are on the right track and need to keep keen focus on getting to 100 percent yes for 2012 financial fitness. Consider finding ways to put away $10 a day into your savings plan of choice. By the end of 2012 that is an additional $1825-$3650 in the bank. Strive to get your credit score maxed out! Your credit is an empowering tool when it comes to financial affairs, so be sure to keep a regular pulse on it and strive for 50-point increase in 2012! Your insurance plans are critical part of your finance. Be sure they are updated!

If you answered three out of the five questions with NO, you need to make some serious adjustments in 2012 to get on the right track toward becoming financially fit. Your savings balance should be higher than what you owe in credit cards. Get to work this year on reducing your debts and ensure you are paying all of your bills on time to improve your credit score. Maxing out credit cards hurts your score, even when you are paying on time. If you can’t buy something unless you charge it, you should not be buying it. Build up savings, even if it’s just $5 a day, put it away for later. Savings grows if you are focused on it. $5/day becomes an extra $1825 by the end of the year.

If you answered NO to all of the questions above, you are on life support as it relates to your personal finances, but it’s never too late to get help. Consider this an EMERGENCY! Your finances are an urgent matter and something you should be thinking about every day. If you have responded to all of the above with a NO (even if you answered 4 NO’s), you have a lot of work to do but you need to understand that it’s not hopeless. Consider this the beginning of focus and discipline when it comes to making daily choices about spending, saving, insurance and your future. Most of financial healthiness is about attitude. Have the right attitude about your finances and a lot of the other aspects of your overall life will be easier. It doesn’t matter how much or how little money you make and how tough things may seem. If you have the right state of mind about your finances, you are on the right track toward being financially healthy. This is URGENT for your survival.

  • Consider minimum daily savings ($1 will do), get a copy of your credit report immediately (you get up to 1 per year at no cost to you),
  •  Check your insurance plans or look into getting insurance if you don’t have yourself or your major assets like home/auto protected,
  •  Get control of your credit card balances and start paying them down or stop using them. Your credit card balance should be smaller than your savings account balance!
  • Set realistic financial goals for yourself. You have a lot of things to work on, so pick 1 or 2 from this list and make it your top priority to get in order for 2012. You can pick the next two items for 2013 and so on. Don’t make it stressful; just make it a priority.

Note: If you said YES to a major life-changing event next year. Whatever your major life change will be in 2012, it’s critical that you plan for it. Even if all other aspects of your personal finances are in tip top condition, major life changing events can create setbacks if you are not prepared for them. For example, if you are getting married, answer these questions together with your fiancé to be sure you are on solid financial footing for your new relationship. Finances are a critical part of a marriage and transparency before walking down the aisle is critical for success. Even if the picture is bad, you know what you are working with and can set goals together and build together. Whatever the life-changing event is that you are facing, think about the costs involved in it and be sure you have a plan in place.

Financial fitness should be at the top of the list for 2012! If you are into resolutions, please be sure that one of them has to do with your finances. Make sure you know the basics of your financial health as you go into 2012 and set milestone goals to help you get fit. Think about unnecessary expenses that you can cut out of your life, how you can start to save even if its $1 a day, and how you are spending and using credit cards. It may mean sacrificing a few material things, but in the long term and for your financial security, it will be worth it. No matter how young or old you are, how rich or poor, it starts today. No excuses. Your financial life is at stake!

Wishing you a Happy, prosperous and financially healthy New Year.

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