Now that the seasons are changing and we have more sunlight in the evening, most of us get extra energy to tackle things we’ve been putting off for too long. In addition to the cleaning, hauling and organizing you may be doing at home, now is a great time to take a look at your total financial picture. Here are a few smart spring cleaning ideas for your financial life:
Check your credit report. It’s a great idea to check in regularly with a credit reporting agency to see the details of your credit report a few times a year. Some credit cards offer this service for free — take advantage of it! If your credit card doesn’t offer it, go to freecreditreport.com and pull your report from one of the three credit reporting agencies. You can save the other two for another free review later in the year or right before a big purchase decision involving your credit (like a home or car purchase).
Review your retirement time horizon and investments. This one is hard if you don’t know what you’re looking for and it may be worth it to talk to a professional. In essence you want to make sure you have an asset allocation that matches your age and risk tolerance. For instance, if you’re young and more than 10 years from retirement you should not have 100% of your account in cash, cash reserves or money market funds. These investments may sound “safe” but inflation has been eating your lunch. Here’s a good article from The Simple Dollar which breaks down the basics of setting up your asset allocation. At the very least, login to your retirement account and make sure you know what you’re invested in and review the expense ratios for your investments. Reading the prospectus for each of your investments is a good start.
Measure your current net worth. Add up everything you own including all your investments and subtract everything you owe (loans, debt, etc.). This is your net worth — a primary metric to track your wealth over time. Has this number gotten bigger or smaller in the past year? There are some great online tools that will help you track it. Mint.com is a good free resource, for instance. You should look to add assets that appreciate in value over time such as real estate and your retirement investments (as opposed to cars and gadgets). As you pay down debts from current income your net worth will also rise.
Check your debt ratios to make sure you’re not overextending yourself. Look specifically at your total debt payments (loans, mortgage and credit cards) in relation to your gross monthly income. Are the debt payments more than 36% of your income? If so, you may be over-extending yourself and walking into some financial problems. If your debt payments are too high, you’ll also have trouble getting financing for big purchases or business start-up capital.
Set up or review your financial goals. Do you want to get out of debt? Buy a house? Retire early? Get specific about your financial goals, rank them, and start establishing a way to get there. Writing down your goals is a good way to start, even if you’re not sure how or when to start achieving them. Keeping your financial goals up-to-date and written down is a great way to help prioritize items in your budget too. It’s a good idea to keep these goals in mind when new spending decisions arise.
These are just a few ideas to get you started. Do you have anything else you like to look at regularly when it comes to your finances?