We need a financial checkup every now and then. Life, in general, never stays the same. Since our personal finances are aligned with how we live our life, we need to make sure that our finances are adjusted after every lifestyle change. It is one of the basic personal finance management habits that you need to learn and implement in your life.
You see, if your finances do not change as your life does, there is a higher chance of you making the wrong decisions. This is specifically true with your finances. Not only that, new financial goals will not be realized.
It does not matter if the change is big or small. Obviously, your finances will require reviewing after going through major life milestones like getting married or becoming parents. But even if it is a small change, you need to review your finances too. These small changes could be a medication that you have to take for the next few weeks or an increase in your car insurance premium after a minor accident. The small finance changes need to be recognized because if not, it can compromise your monthly budget. When that happens, you might end up falling short at the end of the month. It is also possible for you to use up the funds for a priority expense.
Sometimes, it is these small changes that end up having the most impact on our finances. The danger is not in the amount but more of the fact that they usually go unnoticed. This is why you have to schedule a regular financial checkup throughout the year.
Steps when conducting a financial checkup
Now that you know why a financial checkup is important, let us discuss how you will conduct it. There are a few simple steps that you need to follow to make this possible.
Analyze your expenses during the summer
Start by looking at your summer expenses. How much did you spend? Was it within your budget or did it lead into debt? According to a survey, 3 out of 10 respondents admitted that they did not budget for their summer expenses. These expenses include vacations, summer camp, social events, and other recreational activities for the family during the summer. If these were not budgeted beforehand, you probably used credit to pay for it. Compute how much you really spent and how much of it used credit as payment.
Study your current budget
After you have seen your summer expenses, it is time to take a look at your current budget plan. See if it needs changing. Do you need to add more towards your credit card payments? Can you pay your balance in full? Remember that you still have to think about your upcoming holiday spending. Do you have enough savings for that? If you were planning to use your credit card, that is probably not the best idea. Holiday debt has a tendency to dampen the joyful season. If you can save up for it, then that is probably what you should do. While you are at it, you might want to look at the other expenses that you need to work on before the year ends.
Look for budget leaks
As you are looking at your budget, you should start looking for any budget leaks that might compromise your financial position. These are expenses that are unnecessary and can be cut off from your budget. Sometimes, people are surprised to see that they had been spending so much money on simple things. The small amount that you spend here and there will amount to a huge one if you are not careful. You want to make sure that you remove all of these. Focus on your needs instead of wasting money on wants that will not really do much to improve your lifestyle.
Calculate your tax returns
At this point, you might want to take a look at your tax returns. Or to be more specific, create a sample tax return – one that you think you will get. It will help you understand your financial standing after you pay your taxes. You can adjust your finances accordingly once you have this information. For instance, you can probably consider increasing your retirement contributions so it will lower your taxable income.
Take a peek at your credit report
Part of your financial checkup is looking at your credit report. When you look at this report, focus on the entries. Are they correct? If you regularly monitor your credit report, you can catch if you had been a victim of identity theft. This has to be reported immediately because it can really compromise your financial position. Not only that, you can check if the credit bureaus made a mistake in your financial transactions. You have to correct these so it will not lower your credit score unnecessarily. Having a good credit score is always a good thing because it opens great financial deals and transactions for you.
Set a holiday budget
After going through all of these, your financial checkup should end with your holiday budget. This is the next big expense that you need to meet. According to reports, almost 4 out of 10 Americans choose to delay their holiday spending until after Thanksgiving. This means they start shopping towards the end of November. Since October is just starting, you still have a couple of weeks to prepare yourself. If you want to really enjoy the festive season, make sure you protect your finances from debt. All it takes is a realistic holiday budget and some sound judgment. You want to make sure that you have enough finances to pay for the things that usually make you happy during the holiday season.
Why is a financial checkup important this fall
The truth is, you can check your financial situation any time of the year. Whenever you recognize a change that might affect your finances, you should take a look at your budget plan and financial accounts. But apart from that, you should also have a regular schedule of when you will conduct a financial checkup each year.
One of the best times to do this is during the fall season. There are two important reasons why this is true.
You need to analyze the damages done by your summer expenses
You might have noticed that your monthly expenses usually rise during the summer season. With no school, the kids are spending a lot of time at home – that means your household expenses will rise. The summer months also provide the perfect time for the family to go on a vacation. Not only that, this is usually the perfect time for the kids to enroll in summer programs that could either involve sports activities, music and arts lessons, etc. All of these indicate a higher expense during the summer season. According to reports, 3 out of 4 people put their summer expenses on their credit cards. When the fall season comes, you might want to check how much debt you were able to accumulate so you can find a way to pay it off.
You need to prepare for the upcoming holiday expenses
If the summer expenses are not bad enough, you also have to prepare for the holiday spending that you need to meet in the next coming months. Are you prepared to buy the gifts, food, and decorations for the festivities? If not, then you need to ensure that you have the finances to meet all of these. If you already have a budget in place, that is good for you. But if not, you need to plan how you will save for all the expenses you will make.
The financial checkup that you will conduct during the fall will give you an idea where you are in terms of your financial situation. Are your finances too damaged by the summer expenses? Or is it in good shape for the holiday? When you know your financial position, you will know how you can strengthen it so you will not end up with a huge holiday debt.