You can definitely see the end of the year from here. Now is a good time to take stock of where you are at with your finances, and evaluate your financial progress. As you look over the past year, and as you consider where you are at, you should evaluate your financial performance in the following five areas:
1. Housing Costs
These can eat up a big chunk of your finances if you aren’t careful. Consider what you are paying on your mortgage, or for rent. The rule of thumb is that your housing costs should be no more than 30% of your income. Personally, I think that it is best to aim for 25% of your net income for housing costs. In my mind, this includes more than just your mortgage or rent payment; you should also consider the cost of property taxes, insurance, utilities and maintenance costs. Look at your situation, and see where you can cut back. If you are thinking of buying a house, be realistic about what you can afford.
Go over your insurance coverage. Make sure that your coverages on auto, life, health, homeowners and other insurance are adequate for your needs. Decide whether you should increase your coverage, or whether there are things you can drop in order to save money. There are a number of options you can use to lower your health insurance costs, including looking into a Health Savings Account. You should also make sure that your family would have adequate income from your life insurance if you should pass on. This is especially important if you are the primary breadwinner.
3. Emergency Fund
Are you prepared for emergencies? Make sure that you have an emergency fund that will help you get through unexpected financial troubles. The recommendation is to have at least six months of expenses saved up, but every little bit helps. If you don’t have an emergency fund, now is a good time to think about starting one. It provides a safety net, and can be a good way to help you avoid financial disaster.
4. Retirement (and other Investment Accounts)
Now is a good time to evaluate your retirement accounts — as well as your other investment accounts. Consider your retirement income needs, and figure out whether your current portfolio meets your goals. You may need to rebalance, or you may need to start contributing more to your retirement accounts. Be realistic about what you are likely to need in retirement and see if you are on track. You should also evaluate other investment accounts that you have, including what you are putting into 529 plans for children. Figure out whether your contributions to these accounts are helping you meet your goals, and whether you are properly diversified across your investments.
Take an honest look at your debt level. How are you doing with your debt reduction goals? Are you getting closer to paying off consumer and mortgage debts? Look at your budget, and see if you can make some changes so that you have more money to put toward getting rid of debt. And, of course, with this comes a requirement to check your budget and make sure that you are living within your means.
Once you have evaluated where you are at, you can begin making a plan for the future. Adjust your financial plan, and get ready for the new year.