Your Quick & Painless Annual Financial Checkup: a How-to


money in wallet

Now that the onslaught of holiday travel, NYE parties, and resolution ruminations are a few weeks behind us, it’s time to set yourself up for a prosperous 2016 with a financial checkup. Whether you’re new to thinking about your personal finances or if you just want to streamline your approach, the three steps below are all you need.

Step 1) Review Your Budget

If you don’t have a budget, now is the time to make one. A budget that you can maintain is the foundation of personal finance. There is no single, right way to budget your money, as everyone’s income and savings goals are different, so you may need to try out a few methods. That said, LearnVest’s 50/20/30 Guideline is an extremely useful way to create a budget. Rather than divvy up your income into individual expense categories such as phone bill, entertainment, internet, groceries, etc. the 50/20/30 guideline breaks down your budget into three buckets, allowing you to looks at the big picture of your finances:

  • Fixed costs. “These are bills and expenses that don’t vary much from month to month, like rent or mortgage payments, utilities, and car payments.” You should aim that your monthly total not exceed 50% of your take home pay.
  • Financial goals. Paying down credit card debt, saving for retirement, and building an emergency fund* are common financial goals. At least 20% of your take home pay should be allocated here.
  • Flexible spending. “These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or gas.” These expenses should account for no more than 30% of your take-home pay.

savings finances
*One helpful note: It’s generally agreed upon that an emergency fund should consist of three to nine months of expenses, but if the imprecision of that number leaves you feeling bewildered, check out Money Under 30’s emergency fund calculator for a more detailed estimate.

The three cornerstones of personal finance are your budget, your investments and your insurance.

Step 2) Review Your Investments

With the proliferation of fintech companies that specialize in investments, it’s easier than ever to automate your investing. Often referred to as robo-advisors, this recent trend consists of “a digital platform that automates the investing process (such as choosing funds and rebalancing), streamlining part of the work that a traditional financial advisor would do,” according to Daily Worth’s Natasha Burton. Betterment is one such platform. All you need to do is set up your investing preferences and goals, and Betterment will invest your money for you, according to their software algorithms. Another option is Acorns, an app that rounds up everyday purchases to the nearest $1, and automatically invests that spare change into a diversified portfolio.

The ease of automated investing services has opened up a world of opportunity to consumers with little previous knowledge of the stock market. And with no minimum required balances, anyone can invest regardless of how much money that have. Even traditional companies like Vanguard and Schwab have began to offer digital investment services. For even more advice in this area, check out DailyWorth’s investing section.

No matter where your investment portfolio is managed, you should reassess your risk tolerance annually. As you circumstances change, your risk tolerance may too, especially as you near retirement or if there is a steep decline in the market.

money car keys

Step 3) Review Your Insurance

Having the right kinds of insurance coverage not only offers peace of mind, it can save your wallet from devastating blows as well. When it comes to health insurance, life insurance, homeowner and renter’s insurance, take a look at Daily Worth’s guide to what kind and how much you need. But when it comes to car insurance, you should review your policy with a few key questions in mind.

Do your coverage levels need to be updated?

As your life changes, so may your coverage needs. For instance, if you’ve upgraded to a fancy new medical plan, it could render Personal Injury Protection coverage unnecessary. Or say you’ve realized flood season is worse than you thought it’d be — could be time to add in comprehensive coverage.

Having proper insurance coverage not only offers peace of mind, it protects your money in the bank.

A few more specific instances to guide you:

  • Has your beloved-but-beaten-down car aged less than gracefully? Depending on your aversion to risk, you may want to reconsider your collision coverage.
  • Do you live somewhere with a higher rate of uninsured motorists? Oklahoma, Florida, Mississippi, New Mexico and Michigan currently top the list of the states with highest percentages of drivers without insurance, making uninsured motorist coverage a wise choice.
  • Have you undergone a major life event? From graduating to getting married to having a child leave for college, there are life events that should go hand-in-hand with a new car insurance policy no matter your age.

Are you getting the best price?

Comparing policy prices from multiple companies is the only way to know if a better deal is out there. And between frequently shifting pricing algorithms and the possibility of price optimization, chances are a better deal could be saving you serious money. By quickly comparing policies from major and local insurance companies, tailored to you, The Zebra can shine a light on the labyrinth of car insurance pricing.

Do you have any additional quick tips or finance hacks that we should know? Tell us in the comments.

  • Lindsey Hayes

    Great tips! Reviewing your policy coverage is a must in this economy. Another good way to save on your insurance is to make sure you’re getting all the discounts offered by your company. They may have added new ones since you started your policy so it never hurts to ask.