A 'State of the Union' for Your Finances?

Leaders across the country present annual status reports to their communities as a way to measure progress and identify goals for the future. The president gives the State of the Union, a governor conducts a State of the State speech — what about compiling one for your finances?

A lot of financial institutions and budget tools give consumers access to annual account summaries, which is a great place to start, but you want to make sure you’re giving your finances a holistic look. With the help of members from the National Association of Personal Financial Advisors, we’ve put together a guide for conducting a State of Personal Finance.

Start Now

If you’re already in the habit of conducting an annual review of your finances, keep doing it. If this isn’t something you’ve done before or you don’t do it regularly, look at the calendar and set a date early in 2014 when you can dedicate time to assessing the previous year. Spread it out over a few days if you have to.

You’ll want to start your review well before that date, collecting up-to-date information on all your accounts.

Look at Your Credit

Consumers are entitled to a free copy of their credit report every year from each of the three major credit bureaus: Experian, Equifax and TransUnion. People have different strategies for requesting them, like staggering the three throughout the year or requesting them all at once. If you’ve never requested your credit report before, it could be a good idea to compare them side by side the first time you do so in order to spot suspicious activity; whatever your strategy, looking at your credit report needs to be part of your personal finance routine.

Credit scores are determined by the information on your reports, and since lenders look at your credit scores when deciding whether to extend you credit, it’s important to make sure your report is accurate.

This is where knowing your credit scores could be helpful, especially if you’re looking to apply for credit in the coming year. Using Credit.com’s free Credit Report Card, you can see what areas of your credit profile need work, whether that’s paying down debt, being diligent with your bill payments or diversifying your credit.

Don’t Overlook Occasional Expenses

It’s easy to make a budget for your day-to-day costs, like food and monthly bills. It’s the expenses that pop up every once in a while or the long-term savings goals that sometimes don’t get enough attention.

Jorie Johnson, a certified financial planner in New Jersey, said her clients often run into budget problems in this department.

“For example, you might need a new washer and dryer or chip in for a parent’s 50^th wedding anniversary party — some large, one-time event,” she said. “More years than not, you will incur large one-time expenses; you may just not know what they will be at the start of the year.”

Similarly, it’s important to revisit long-term savings plans and insurance policies. It’s easy to choose plans, set a monthly amount to be withdrawn from your paycheck and forget about it, but your needs change over time, and your strategies should reflect that. Even if you don’t think changes are necessary, a year-end review is the perfect time to make sure.

Francine Duke, a certified financial planner in Illinois, said she and her clients will review employee benefits and retirement savings to make sure everything is on track and that the client is maximizing his or her benefits. That way, when the employee’s open-enrollment period comes along, he or she can confidently make adjustments as necessary.

Assess Last Year’s Goals & Set New Ones

Once you’ve gathered information about your financial activity in the past, you’ll be able to make educated decisions about what to do in the future.

Your current level of financial planning will dictate where to start in the next year. While all consumers should keep a budget, not everyone does, so that may be the top priority in the coming year. Perhaps you had trouble sticking to your budget in 2013, so you’ll need to identify why it was challenging and what you need to do to stay on track.

Financial outcomes are determined more by level of planning than income. Whether your goal is to reduce debt, increase retirement savings, buy a home or a little bit of everything, the best thing you can do is create a tangible plan for making progress toward financial goals.

If you start your year by identifying your past struggles and future solutions, you will increase your ability to make good decisions in the following months. Think about it: If you’re blowing your budget on shopping or dining out, you may be more deliberate in your efforts to reduce spending in those areas. If you realize you need to make room in your budget for savings, it may not be the right time to take on a large purchase.

Not everyone loves to plan, but no one likes financial trouble or overwhelming debt. When it comes to personal finance, regular planning is a must. Have you put your State of Personal Finance on the calendar yet?

Image: iStock

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