While it’s never a bad time to review the state of your finances, January is an especially good opportunity for an in-depth financial examination. To help you start the year off right, here’s a simple three-step process you can use to conduct a quick yet thorough review of your financial health.
The traditional advice for conducting a financial review is to review monthly income, expenses and spending. These days, you can usually access all that information—and more—simply by logging into your checking account, savings accounts and credit card accounts.
Remembering all your login and password details can be time consuming, but once inside your accounts, you’ll get a much clearer picture of what money is coming in and out. Check out recent transactions, and pay special attention to any late fees which may have been erroneously charged, or monthly subscription costs you’re still paying despite no longer using the service. With so many services automated, including bill pay and salary deposits, it’s especially important to regularly log into your main accounts to manually check your finances.
After a thorough look at your main accounts, you’ll have a clearer idea of how your monthly budget is stretching. If bills are being paid on time and you still have a good amount of cash in your checking account at the end of each month, consider moving that money to a high yield savings account or investing it. Term Share Certificates, also known as CDs, are one popular option for people who want a higher rate of return for medium-term savings.
On the other hand, if you’re struggling to keep on top of expenses at the end of each month or struggling with debt, it’s time to re-think your spending and budgeting strategy. There are plenty of tips online about how to make a budget, as well as ideas for how to pay down debt. The first step is knowing what you spend and what you owe—information is power, so don’t skip this step in your annual financial review. You can also take advantage of useful budgeting technology, such as the budgeting tool on Harvard FCU’s mobile app which is available to assist members in tracking their progress.
As you’re conducting a financial review, consider not only the current state of your finances but also what’s coming next. Are you expecting a new family member this year, or sending someone off to college, or planning for retirement? Make a list of any upcoming changes and consider what they will mean for your finances—keeping in mind that insurance may be a consideration as well.
And, as long as you’re thinking about the future, take a moment to review your retirement accounts and strategy. Do you know how your 401(k) is being invested? Have you opened an Individual Retirement Account (IRA) and is it funded to the maximum for all eligible years? Read more about retirement accounts here if you’re unsure where to start.
Every person has a unique financial situation and unique financial goals, so adjust your annual financial review to fit your needs. This might mean scheduling in a chat with your loan officer, or talking to a financial advisor about investment accounts. The important thing is to take the time to sit down with your finances: understand where you are, where you want to go, and how you can get there. Performing this financial review at the start of the year is an excellent way to set up healthy financial habits for the next twelve months.