Another Year in the Rear: Check Your Financial Health!

By Alanna McCargo

The New Year is the perfect time to reflect and renew your commitments to your health, your family, your faith and your finances. For your annual financial health check-up, there is a simple five point financial fitness test that can help you re-focus and re-set for the upcoming year. Its a quick five minute test, and will assist in bringing important aspects of your finances back into complete focus. If you have difficulty answering or if you don’t feel your answers are solid, you will have some immediate items to act on.

Respond to the following five statements with yes or no:

  1. Your savings account balance is larger than your credit card balance.
  2. You have checked your credit score with the three major reporting agencies (Equifax, Experian and Transunion) in the past six months and your score is above 650 (preferably over 720).
  3. You have checked all of your insurance policies in the past 12 months to ensure they are up-to-date and being carried at the right value (homeowners, renters, life, disability, automobile, health).
  4. You have saved for yourself (or your children) at least 5 percent of your net income in a retirement account, college funds, stocks or a rainy day fund? (ex. if you bring home $50,000/year that is $2,500 in some type of savings)
  5. You have zero ‘planned’ life events coming up this year that will impact your finances?  Examples include: marriage, divorce, child graduating high school, retirement, returning family member from military deployment, going back to school, starting a business, moving/relocation, mortgage rate adjustment.

Are you financially fit? Let’s see how you are doing:

If you answered YES to all of the questions above, you are in tip top shape going into the new year! Let’s be sure you stay in good health. Yes, you can always do more by staying focused on saving. If the majority or all of your savings was in retirement, you need to do more to create liquid savings (money you can use when you need it). Consider increasing retirement contributions this year to the maximum levels and ensuring more of your disposable income goes into interest bearing savings accounts or investments.

One thing to be sure you do this year to protect your financial future is 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. New tax policies may change your overall position and you need to understand how. Consult a tax adviser if you are able to do so.

If you answered 3 out of the 5 questions with YES, you are on the right track and need to keep focus on getting to 100 percent yes for total financial fitness. Consider finding ways to put away $10 a day into your savings plan of choice. By the end of the year that is an additional $3,650 in the bank. Strive to get your credit score in top shape! 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 30 to 50 point increase in your score. Reduce your revolving credit balances if you can, and look for opportunities to refinance on larger debts where your improved credit score could get you a lower rate (ex. mortgage rates are still at lowest levels in history).

If you answered 3 out of the 5 questions with NO, you need to make some serious adjustments this year to get on the right track toward financial fitness. Strive for a savings balance that is higher than your credit card debt. 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 make the purchase. If you have any credit cards with high interest rates, work to pay those off first or get them transferred to a lower interest card. This should be top priority as paying high interest on credit cards is digging you into a deep financial hole.

If you answered NO to all of the questions above, you are on life support as it relates to your personal financial health, but it’s never too late to get on track. Your finances are an urgent matter and something to prioritize. If you have responded to all of the above with a no (even if you answered four no’s), you have work to do, and its extremely important work. Consider this a new beginning toward financial focus and discipline when it comes to choices on spending, saving, insurance and your future.

Most of your financial fitness is about attitude and awareness. 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, and money isn’t a source of stress in your life, you are on the right track toward being financially healthy.

  • Create a minimum daily/weekly savings target ($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;
  • Set realistic financial goals for yourself.  You have a lot of things to work on, so pick one or two from this list and make it your top priority for the year. You can pick the next two items for next year and so on. Don’t make it stressful, just make it a priority.

Financial fitness should be at the top of your priority list. Your financial health impacts many other aspects including your physical and mental health and well being. Set very concrete and specific measurable goals for your finances for the new year.  Know the basics of your financial health as you go into the New Year 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, 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. Your financial health should be a top priority.

Here’s to a prosperous and very healthy New Year!

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