Not only is the start of the New Year the perfect time to make your annual resolutions to hit the gym, have more sex and get that promotion, but it's also a great time to do an annual financial checkup and make sure your money is on track. Financially, it makes sense, because a new tax year means a fresh start for your income, expenses and investment transactions. Many New Year’s resolutions involve personal finance goals for this reason.
Most people will get a physical at the doctor’s office to check on their health as well as an oil change and tune-up for their car; however, the same people will not properly plan their own finances. With a little forethought and preplanning, you can make sure that your finances are in line as you head into the New Year. For your benefit, we’ve compiled a few simple tips to help you conduct an annual financial checkup.
Review the past year
Before you can move foreword with your annual financial checkup, you have to take a look at your past mistakes. This means pulling all of your financial records from the closet. Take some time to compile all of your bank statements, brokerage statements, credit card statements, tax forms, and receipts from the past year.The first step to improving your financial health is balancing your own budget. This means making sure your income is greater than your expenses. Analyze your spending habits and see exactly where your money was spent. Maybe you know exactly where your money has been going, but if you’re like many people, you might have no idea where it was being spent.
Be honest with yourself and scrutinize your statements when conducting your annual financial checkup. Are you carrying a balance on a credit card with a high interest rate? Did you get charged for a low balance or out-of-network ATM fee? These are the types of things to monitor and improve upon in the coming year.
Plan for next year
After you have reviewed last year’s spending, you can start planning for the year ahead. And when looking forward during your annual financial checkup, it’s important to plan to correct the mistakes you made last year with a properly prepared budget. Despite the popular belief that creating a budget means cutting costs, setting up a budget doesn’t have to be a bad thing. All a budget does is help you see where your money is being spent.If you enjoy drinking expensive lattes every morning before finding your way to your cubicle, be sure to plan for that expense in the budget section of your annual financial checkup. Also, if you’re planning to make a big-ticket purchase in the coming year, such as a car or a house, you would be well-advised to start making those payments to yourself before you buy your item; doing so will help acclimate you to your new financial situation.
Another good thing to do during your annual financial checkup is to allocate a chunk of money toward an emergency fund.
Set goals and stick to them
Setting goals, whether they’re for your financial future or not, can motivate you to take action and will make you feel great when you achieve success. As such, while you are conducting your annual financial checkup, divide your goals into short-term and long-term ones. The short-term goals can be anywhere from a few months to one year and the long-term goals can be from one year to retirement and beyond. It is important to set reasonable and attainable goals so you don’t end up disappointed.The financial goals you set can include anything from saving for a down payment for a home or paying off your credit card debt. Because setting goals can sometimes be daunting, it’s important to remember that no goal is too small -- you have to start somewhere.
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