The end of one year and the start of a new one is the perfect time to check in on your credit. It’s an opportunity to reflect on the past 12 months, reviewing all the financial wins and financial challenges you faced. It’s also a chance to look ahead to the next 12 months and prepare for another year.
This guide is here to help you with this review. Check out the five tips below to learn what you can do to end your year on a financial high.
1. Review Your Budget
When was the last time you made a budget? If you can’t remember the date, it’s time to start from scratch. A lot can happen in a year, after all.
You need to make sure your budget is still an accurate reflection of your cash flow. Maybe you gained more expenses, changed jobs, or added a dependent — these life events can have a big impact on your finances, so you need to include them in your new budget.
Consider all the things that have changed in your life; they might be different from the examples above. Update your budget accordingly and confirm you can still make ends meet.
If things are tight with your update, refer to the 50/30/20 budget for help. The 50/30/20 budget plan sets spending limits for essentials, wants, and savings.
You should aim to spend 50% of your take-home pay on the essentials and 20% of your paycheque on savings. This plan leaves 30% of your take-home pay for fun spending. Look at your non-essential spending to see if you can whittle your expenses down.
Don’t be afraid to play around with this plan to reflect your unique cash flow. While the plan sets stark limits on spending, you can customize your limits. You might have to cut some spending in the upcoming year, or you might be able to boost your fun spending while contributing more to your savings.
2. Assess Your Emergency Fund
How is your emergency fund shaping up? Depending on the year you’ve had, you may be that much closer to achieving six months of living expenses in your account. Or, you may have drained it to cover a series of unfortunate, unexpected expenses that came and went this year.
In the latter situation, you’ll want to return to your budget. You need to prioritize refilling this emergency fund in the next year so that you have some savings for the next unexpected expense. Because you may not be able to predict what’s to come in the next 12 months, and some of those surprises may be expensive.
If you can’t rebuild your emergency fund before the next emergency expense arrives, visit a site like Fora to learn what you need to qualify for a line of credit. If you qualify, you may apply for Fora Credit in emergencies. If you are approved, you can fall back on a line of credit until you repay your emergency fund.
3. Check Your Credit
Review your credit report and score, even if you don’t have plans to take out a new line of credit. Your report is as close to a financial report card as you’re ever going to get. It can tell you a lot about how you’re fairing. A high score indicates you’re doing well, while a low score suggests you have some improvements to make.
If your check reveals you have a subprime score, you may encounter challenges when borrowing a personal loan, mortgage, or line of credit in the future. To improve your chances of approval, work on improving your score.
You can start by paying your bills on time and using your budget to pay down debts. For the biggest impact on your credit, learn all the factors that go into making your score and show each of these factors a little bit of love.
4. Go Over Your Insurances
Now’s the time to go over your auto, health, and home insurance plans to make sure your coverage gives you everything you need.
Shop around with other insurers to see if you can get a similar policy at a lower price. Certain life events or changes to your lifestyle might also lower your premiums, so be sure to update your profile whenever you can.
If you don’t have a full roster of insurances, consider getting them in the New Year. They join your emergency fund as a safety net in emergencies, giving you extra backup for costly repairs and expenses. With the right policy to your name, you may reduce how often you rely on a line of credit in emergencies. Refer to your budget to see how much you can afford to spend on monthly premiums.
5. Look at Your Retirement Plan
Your retirement savings may grow over decades, but you should check-in on them every year. This review ensures your savings are performing up to your standards.
Beyond assessing your progress, you should also consider your risk tolerance and the economy at large. These things fluctuate in tandem. After all, people often become more conservative in bear markets, but you may be willing to risk more to earn more when other people sell.
Lastly, you should also ask yourself this big question: will your current investments achieve your goals under your time limit?
If you aren’t sure about retiring on time, make an appointment with a retirement advisor to determine your next step. Your bank often provides these appointments for free to help you maximize your business with them.
The Takeaway:
While you don’t have to do this financial check-in precisely at the end of the year, you should make time for this review sometime soon.
Strive to perform this check at least once a year on whatever schedule works for you. You need to check in with your finances to make sure you’re still on track to meet your goals — whether you want to pay bills, build an emergency fund, or retire on time.
