Many people are reflecting on their accomplishments and mistakes this time of year. I like to use this time as an opportunity to review our finances and create a snapshot of where we stand. It helps us to see what we need to improve on and what goals to set for the upcoming year.
I start with cash flow because you need to make sure that you’re not spending more than you earn. finances are not sinking you more and more into debt. Grab a budget spreadsheet and input all your income and expense numbers. If your expenses are higher than expected, looks for areas where you can cut back.
For example, instead of going out to see a movie every weekend, try visiting museums and art galleries on free nights, visiting local and national parks, or seeing if there are any free concerts and festivals. If you’re still intent on seeing movies, consider signing up for Netflix or Blockbuster.
If you’re looking for ways to increase your income, consider starting a second job or building an alternative income stream based on a hobby or other passion. It doesn’t have to make you full time money in order to improve your bottom line.
I’ve learned from personal experience that the only way to lessen the pain of an emergency is to prepare for it. Cars break down, jobs get lost, and appliances stop working at the absolute most inconvenient time.
Make sure you’re comfortable with amount of emergency savings that you have. If not, then start building it up. By putting it in a high yield savings account, you’ll have easy access to it and earn a bit of interest at the same time.
It might help to separate this category into high interest consumer debt such as credit cards and low interest and/or tax advantaged debt like student loans or your home mortgage. Attack the high interest debts first, as they can get out of control if put them off too long.
The easiest way for me to pay off my credit cards has been automating my credit card payments. Try to pay the minimum on all but one of your debts. Put the rest of your debt reduction money into either your debt with the highest interest rate. If you’re not comfortable with that approach, try attacking the lowest balance first.
If you have retirement accounts, make sure that your asset allocation isn’t out of whack. If they are, then you should rebalance them. You may also want to review your fees and expenses to see if you can save some money.
If your job offers a 401(k) retirement plan and you haven’t already joined, you should enroll. Many companies offer a match on a percentage of your contribution, and failing to take advantage of this free money can be a costly mistake.
You can also get started by opening a Traditional or Roth IRA through your favorite brokerage or mutual fund family.
How does your financial snapshot look? Is it better or worse than a year ago? What are you planning on doing in 2010 to improve things?
6 Responses to “Creating a Financial Snapshot”
Well, I’m late in responding, but better late than never! My financial snapshot gets better every year, but I may not hit a positive net worth until I’m 50. I will pay off my credit cards, over half of my remaining car note, and increase my savings. I’ll pay off another $10k in student loans, but they’ll still be well into the 6 figures. Knowing, however, that I’m working diligently toward that ultimate goal, and seeing the progress, helps keep me motivated.
Sadly, leo, I agree with you. Most are too afraid of what they’ll see if they take a closer look. and I’m with craig! We are better off this year than last, but still wish we could save more. Those darned kids are such a drain on the wallet!! (but don’t get me wrong, they are worth every penny….most of the time 😉 )
Such good advice.
Sadly most will just bury their heads in the sand and not want to look at where they are.
Take this snapshot once a month at a minimum and your financial life can’t help but get better.
For a snapshot that includes a clear understanding of cash flow, I’d definitely recommend a tool called DebtSpark (http://www.debtspark.com).
it’s a solid, simple alternative to the common spreadsheet and really is a great starting off point for getting a grip on your finances.
Nothing new in this and several preceeding posts…gotta save, gotta budget, gotta have an emergency fund, gotta live within your means..
I have a good outlook at my financial snapshot, just wish I had more income to help allocate it accordingly into various accounts to save more.