Financial Checkup for a Healthy Year
I’ll be perfectly honest with you—I’m not a fan of new-year resolutions. If they work for you then congratulations but they are a result of the premise that change can only happen at big paradigm shifts when, in fact, change is the result of committing to a goal and showing up for that goal on a consistent basis. And I’m not biased at all—my 5pm gym class definitely isn’t more full in the month of January than it is at any other time of the year.
With that having been said, there is one advantage to getting your finances in order right at the start of the year: your December statements for all your accounts show exactly how much you spent in the previous year. Why is this important? Well, it’s an incredibly powerful tool for analyzing the accuracy of our budget.
All of that is to say now is as good of a time as any to dial in our finances. Here are a few things to do for your first financial checkup to make sure that you’re on the path to success in 2022.
1. Print out every single December statement for all of your spending accounts. This will include your checking account, credit cards and home equity line of credit. Print out that year-end statements for any accounts that you used to pay expenses!
2. Make sure that your budget is assembled. Your budget will primarily focus on your two types of necessity expenses: fixed and variable. Fixed will include expenses that don’t change on a monthly basis like mortgage, internet, and cell phone bills. Variable necessity expenses include items like groceries and gasoline. If you need some help with figuring out your expenses, visit our resources page and request our expense worksheet here.
It can be difficult to get a good handle on variable necessity expenses. The best way to do so is by going to the website for each of your spending accounts and sorting expenses by the category you’re trying to figure out. If they don’t have categories, you’ll have to type in the names of various vendors that you might use for these variable expenses (for example, if there’s one grocery store from which you buy your groceries you can search for transactions at that store by name). You should be able to figure out your total spending in that category through this method and from there you can divide by 12 to see your average monthly spending for that particular expense type.
John’s Top Tip: An app like Mint or our eMoney tool will allow you to aggregate all of your spending accounts in one place AND categorize any expenses. You can then sort by expense type and it will give you your total annual spend for that expense type without you having to sift through multiple websites.
3. Look at your final paystub of the year for you and your partner. Why? So that you know how much income landed in your bank account after savings, taxes and benefits. Once you know what your total net pay was last year…
4. Compare your spending from last year to your net income from last year. Was the spending more than your net income? If so, identify why. If not, you may be running at a surplus and growing a balance in your bank account.
5. Compare your anticipated budget to what you actually spent over the past year. This will likely be eye-opening.
6. Identify the expenses that pushed you above your anticipated budget. Were they one-time expenses or did you tend to go out once a week? Either way, you can budget for these lifestyle choices if you know that you are likely to make them.
7. Make sure you have an emergency fund. Three to six months of necessary expenses (both fixed and variable) is a good general target for an emergency fund. If you don’t have an emergency fund, building one should be one of your first savings goals.
8. Find out what your employer match is on your retirement plan at work and make sure that you’re contributing enough to get the full employer match. This is free money—take advantage of it if you can.
9. While you’re digging through your employer benefits, find out how much you have in life insurance death benefit and if you can get supplemental coverage through work. These supplemental policies are offered at group rates which means that they are less expensive than policies you would purchase from an agent. You might not be able to cover all of your insurable need, but it’s at least a good place to start.
John’s Top Tip: If you need an additional life insurance policy, reach out to us before you reach out to an insurance agent. Insurance agents do not consider your whole financial picture when making insurance recommendations and have no fiduciary responsibility like we do here at Generation Capital Management. We know insurance, but we don’t sell insurance. So our recommendations have no inherent conflict of interest.
10. Make sure you know what your interest rates are on your credit cards. The interest rate can be found on your statement.
John’s Top Tip: If you’re carrying a balance on your credit cards, those interest rates are probably eating you alive. Credit card companies don’t play fair—they hire employees who know how to keep your balances revolving. Always call and ask for an interest rate reduction on any cards that have a balance. Also see if you qualify for a 0% interest balance transfer card and make a strategy to pay off the card during the 0% interest period. If you’re still stuck, give us a call.
11. Schedule time in six months to review your finances again. You take your physical health seriously, why shouldn’t you make the same choices with your financial health. Let us be your financial health gurus. But even if you don’t schedule an appointment with us, schedule one with yourself to check on your progress!
This list should get you well on your way to financial wellness in 2022. Do you do some of these things each year? Is there anything that you do at the start of a year to prepare for the year ahead? Reach out to me at jhowe@gencapmgmt.com to share with me what those things are!
And, as always, if you want some help cleaning up your finances and making sure that you’re squared away for the year ahead, you can reach out to schedule an appointment with us and we’ll be more than happy to help!
