A thorough examination of your finances may help you weather the current economy and position yourself for when the financial landscape improves. It’s not possible to build a financial strategy that has all the answers, but you can aim to build a strategy that positions you to handle chaos and change.
A recent Business Insider article, “10 Steps for Successfully Completing Your Next Financial Checkup,”1 presents several great pieces of advice. A great way to get your financial checkup started is to take a close look at your monthly spending habits. While you may be going out less for dinner and drinks or taking in fewer movies and ballgames, you may still find some surprises if you take an in-depth look at your expenses.
What do you think you’re spending on Netflix, music streaming, and other regular subscription services? Those fees can add up quickly. Let’s say you have two subscription services for a total of $30 a month, it may not seem like a lot of money. But looking at that cost over a year, that $30 becomes $360. Many people have even more than two subscriptions, especially as people increasingly cut the cord with traditional cable companies.
When you and your kids or grandkids are spending more time at home due to the current state of affairs, there’s probably nothing wrong with adding a couple of new subscriptions to your entertainment options. But as we look ahead to the fall and winter, and we cross our fingers in the hope that life returns to a bit more normalcy, you may want to scale those subscriptions back a bit so you can more comfortably add going to the movies or dining out back into your budget.
The next thing you may want to include in your checkup is crunching the numbers on your debt. This could be especially important if your hours have been reduced, you’ve lost your job entirely, or for any other reason, you have less money coming in now than you did before the pandemic.
One way to do this could be to just make a good, old-fashioned list. Put together a detailed list of all your debts, with special attention paid to your interest rates. Your list should include credit cards, student loans, car loans, your mortgage, and any other significant debts. If money is tight, you may be able to reach out to your lenders to make arrangements before you miss payments.
Next, think about replenishing your emergency fund. 2020 made it even more apparent how important it is to have some money set aside to cover your bills and expenses if you temporarily lose your income. Many financial experts recommend socking away at least six months of expenses.1 Knowing you have some money put away if things get tough will provide you with more peace of mind and may also help you stay away from taking on more long-term debt to cover those bills.
These are far from the only ways that you can conduct a checkup on the state of your finances, but they’re a great place to start. Checking in with a financial service professional is also something that can help you determine if you’re still on track to meet your goals for retirement.