Give yourself a financial self-exam
April is Financial Literacy Month. Your tax returns are also coming due and it’s probably time for a little spring cleaning. Considering all that, this is a great time to do a financial check-up and see how you’re doing. How do you complete a financial check-up? It’s easy. Just follow these steps.
Pull a copy of your credit report
You’re entitled to a free report each year from each of the three major reporting bureaus (TransUnion, Equifax, and Experian).Visiting AnnualCreditReport.com is probably the simplest way to access your reports.
Review your credit report
Your credit report is exactly what the name suggests – a report detailing your past usage of credit. It will show you what accounts are in your name, how long they’ve been open, what the balance was at the time of reporting, any times those accounts were delinquent, and more.
For the purposes of a financial self-exam, be sure to review all of the accounts and make sure the information looks accurate. It’s also helpful to jot down all of your current outstanding debts.
Check your credit score
Your credit score is an interpretation of all the information contained in your credit report. It’s a mathematical predictor of how likely you are you successfully repay future loans and credit balances. Your score primarily impacts your ability to receive new credit at preferable rates, so it’s helpful to know where you stand.
Most credit bureaus don’t provide credit scores for free, although there are now many products (such as certain credit cards and sites like Credit Karma) that do provide credit scores for free. When looking at your score, make sure you understand which scoring model is being used (FICO is the most ubiquitous, but Credit Karma uses VantageScore 3.0, for example). If your score is low and you anticipate needing to apply for new credit in the near future, you may want to consider taking steps to strengthen your credit.
Review your checking, savings, and retirement accounts
How much money do you have on hand? Do you have an adequate emergency savings account? Is your retirement savings on pace to meet your needs? An important part of being financially healthy is having a cushion available to help soften unexpected blows, like a sudden loss of income or unexpected medical bills. If your funds feel a little light, you may want to consider altering your spending habits and budget to accommodate a new savings plan.
Review your spending
Finally, just as your doctor will ask questions about your lifestyle to determine risk factors, you should be asking questions about your spending habits to determine if your financial health is at risk. Where does your money go? Review your statements and receipts. If you’ve got older statements, review your spending over time.
There isn’t a right or wrong way to spend money, but as you begin to see where your money tends to go each month, you may also begin to sense some patterns emerging – some good, some bad. Challenge those patterns. Do you eat out every Friday night? Ask yourself why and then try to decide where that expense falls on your priority scale.
At the end of your financial self-exam you should have enough information to make a diagnosis. If everything looks good, you can keep doing what you’re doing. If your credit isn’t ideal or your debt payments dominate monthly spending, you may want to consider making some changes.
It’s important to remember that just like a visit to your physician, a financial self-exam can only tell you what seems to be wrong. If you want things to improve or change that’s up to you. And if you don’t like the results of your self-exam and aren’t sure what to do next, consider speaking with a certified budget counselor. The advice is free and can really help you understand your options.