Financial health should not be a topic that only persists at the start of the year. It might not be one of the topics that can get you out of bed but it is important nevertheless. Without it, you might not even have a bed to sleep in. That could be one motivation to get started and make sure you are on the right track early in the year.
Thinking about your finances early on in the year can help prevent you from making financial mistakes that will haunt you for a long time. Just as it is easy to destroy a reputation that you worked hard for years, the same is true with finances. You can meticulously work on achieving a financial goal for years but you can quickly take it apart with a few bad decisions.
In order to keep these things at bay, you need to be mindful of how you manage your finances. It would also help to take up a proactive stance when it comes to budgeting. Try to look at financial safeguards you can put in your money management. These will help remind and alert you to potential problem areas that could creep up.
Here are a few of the areas you need to look into at the start of the year. These will help you set the tone for your financial health for the whole year.
Check Your Credit Report
It is important that you have an idea how crucial your credit score is when you talk about your finances. Your credit score is how financial institutions view you and your habits using just three numbers. This is computed by looking at your credit report much like your report card in school. It lists down all your financial activities taking into account both the good and the bad.
If you have been diligently making on-time payments then this should be in your report. Just as if you have been sending in late payments then this will reflect in that report as well. However, you need to understand that there can be mistakes in your report. Though you can correct them, the idea is to catch them early on. This is because one drastic effect of a bad credit report is unemployment.
Know Your Net Worth
Similar to your credit score, your net worth is another vital set of numbers that you need when managing your finances. In a nutshell, this simply means you get an idea where your finances are in terms of actual money equivalent. A positive net worth can mean you are doing a good job. Consequently, a negative one can equate to mismanaged finances.
If you are serious about financial health, you need to know how to compute for your net worth. You simply have to tally all your assets as well as all your liabilities. You then subtract what you owe with what own. This should give you a positive amount and the higher it is, the better. If you get a negative figure then work on reversing that problem.
Cash in on Unclaimed Money
You might not believe it but USA.gov shares how people can process their unclaimed money. That might sound off as a scam waiting to happen but this is not some prince asking you to send cash. This is money you might have forgotten to cash in on. It can be a host of funds from unclaimed back wages, tax refunds, and even FHA insurance refunds.
More is not always better because when it comes to your finances, being able to manage what you have is the key. However, this does not mean that you should forego unclaimed money. It might help you strengthen your budget. It can even help you pull those long term goals a little closer in your timeline.
Tackle Your Debt To Improve Your Financial Health
In today’s society, debt has become a common denominator with most members of the community. You parents, grandparents, family members and even officemates could have debt. It has become so prevalent that it now seems common and acceptable for people to be carrying debt. This should not be the case.
There are times when you cannot help but take on debt. Mortgage, capital for business or even in buying a car. These are some examples of acceptable debt but repayment should always follow. It is important to meet your payments to slowly pay off the debt and at the same time, improve your score as well.
Establish Savings Goals
One way to start and actually keep track of your financial health is with a savings goal. For one, establishing a goal can give you direction with your savings effort. It can also let you know if you are on track with your goal. One thing you have to remember though is to put a timeframe on your savings goal.
What you can do is to have a start and end date on your savings target. Doing so would help you be more accountable to your goal. Making it time bound is a great strategy that gives you a gentle nudge with your target. It reminds you that you cannot just park it and pick it up anytime you want.
Request a Credit Limit Increase
This might come off as a surprise because it does not seem to have a direct hand in getting your finances healthier. If anything, it might even open the possibility of putting your finances at risk. That is if you are easily tempted with a large credit allowance on your card. Add the fact that Forbes.com shared how average credit limit amounts went down this year. However, if you have a good money sense on your head then this can do wonders for your credit score. The way it works is that you are able to improve your credit utilization ratio.
If your lender agrees, an increase in your credit limit would quickly put a wider gap between your limit and whatever debt amount you carry on your card. However, you need to understand that you should not increase your spending. If you do then this action negates whatever benefit your increase credit limit brings. If at all possible, try to lower down your debt to maximize the advantages of your new limit.
Request For A Lower Interest Rate
Another thing you can take up with your lender is if they will agree to lower down your interest rate. This will be a great start to the year and will chalk up a positive point in your financial health planning. Of course, you need to make sure that you are in a position to considered for this request. One way is to make sure that you have been making your payments on time.
Your lender would be more open to considering your request if you can prove that you are not a risk. The way to prove this is to show them that you have been making your payments on time and have never been late sending them in. If your lender agrees then your finances are looking good because, for one, you can save money from paying high interest on your purchase. This is also a good sign that you are on top of your payments.
Get Your Reserve Funds In Order
Financial health and reserve funds are two things that go well together. They are oftentimes mentioned in the same breath. This is because your reserve fund is one great barometer of how healthy your finances are. The more you have, the less stressful unexpected financial problems become. If you were not able to prepare financially, then the slightest setback could have grave implications for your finances. This is why you need to have a solid plan in setting up and maintaining your emergency and rainy day fund. The bigger your fund is, the more useful it becomes.
However, when planning for this, you need to keep in mind how your fund remains relevant over time. This is because it can lose value due to inflation. Tradingeconomics.com shared that inflation has been on the rise when compared year on year. This means that if you just leave your money in the piggy bank all its life, the value would go down. Your reserve fund needs to be accessible but it does not mean that you leave them lying around the house somewhere.
Checking in on your financial health at the start of the year is a great way to manage your finances. Be sure to do the same all throughout the year to maintain your finances in good standing.