How Do I Know If I’m On Track
You’re saving and investing. You feel that you are working towards your financial goals. But how do you know?
Here are FIVE quick steps you can do to “take your financial pulse” and help make sure you stay financially healthy.
- Check Your Annual Credit Report. You’ve heard it before, but have you actually done it? One idea is to make checking your credit score part of an annual routine, so you won’t forget to do it. For example, checking it on your birthday or anniversary, or at the same time that you file your taxes. Beware sites that try to sell you something along with your credit report. https://www.annualcreditreport.com/index.action is the official site to get the legitimate information from all three reporting agencies (Equifax, Experian, and TransUnion). Great FAQ’s, like why you should check your credit report, and other consumer protection info from the FTC can be found here: http://www.consumer.ftc.gov/articles/0155-free-credit-reports. Another site that’s worth checking out is Credit Karma. It only provides you with a report from TransUnion, but it also provides a comparison to your peers and recommendations on how to improve your credit score, free. https://www.creditkarma.com/
- Review your insurance coverages. If you want your insurance coverage to be truly useful to you, you need to keep it updated. Does your house look the same as it did three to five years ago? As you add or subtract big ticket items to your life (car, motorcycle/boat, jewelry), taking a moment to update your insurance agent with this information is a worthwhile activity. And even if you aren’t doing a lot of adding or subtracting, do you know whether your insurance covers actual cash value or replacement cost? This difference is important in deciding whether to file a claim, and what you can expect as a payout. Finally, in today’s litigious society, you may want to ask your insurance agent about an Umbrella insurance policy. These policies add a layer of coverage that responds to a variety of situations and can often be added to your current coverage for pennies on the dollar.
- Be familiar with the terms of your loans, especially your mortgage. I don’t mean you should memorize the whole loan document (surely you have better things to do!) – but knowing a few key items will help you in managing debt. First, know your APR, or Annual Percentage Rate. This is how much you are paying to borrow the money. Knowing this number will allow you to make comparisons between your lender and others, and tell you if you are getting a good deal, or if you should consider refinancing when rates change. Second, know your timeline. How many more years before the loan is paid off? Have you done the math to see how much of a difference is made by paying ahead a little each month? You may be surprised. Here’s a fun calculator to figure that out: http://www.dinkytown.net/java/MortgagePayoff.html
- Know when your emergency fund will run out. If you said, “what emergency fund?” then you know where you need to start. J Whether you call it your “rainy day fund” or “cash cushion” or simply a savings account, you will truly help yourself by having a financial safety net to come to your rescue when life’s hiccups strike. The recommendation is to have 3-6 months’ worth of expenses saved up – not income, but expenses. The thought behind that is, if something should happen to you (job loss, health issue, injury) that would put you temporarily out of work, then your emergency fund should provide you with a few months’ cash flow while you concentrate on getting back up to speed. Setting a goal of having $1000 in your emergency fund is a great way to start. Creating an automatic deposit from checking to savings each month is one way that many successful savers achieve this.
- Examine what you can truly expect in retirement. Many people don’t want to take a look at this one. They think they are too far behind and that the situation is “hopeless.” Time and again I have helped clients face that fear. Sometimes they are not as badly off as they thought. Sometimes we discover that a little extra push now can make a big positive difference later. The point is, you can’t fix what you don’t know. And time is your best friend or worst enemy in these situations. As Earl Nightingale said, “the time will pass anyway; we might just as well put that passing time to the best possible use.” Take a moment to review your current retirement savings and what you are actually doing, to know whether you are going in the right direction.
-This one can’t be solved quickly with an online calculator (though there are plenty of calculators out there! – but I haven’t found one that can take everything into account and deliver an accurate number). Seeking the guidance of a professional can be quite beneficial in this area.
I hope these five quick tips are helpful to you. Running through a quick “financial tune-up” every year is a key to maintaining or even improving your quality of life.
If you like what you’ve read here, feel free to pass this on to someone who would benefit from this information. If you have general questions or are wondering about your personal situation, please contact me directly. Finally, if you are not currently a client, and would like to learn more about this topic or about our firm, I invite you to reach out to me anytime.