Time to review finances for the coming year

This was originally published on Monday, December 7, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

It is hard to believe that 2016 is less than a month away. Before the holiday rush gets in full swing, now is a time to sit back and start reviewing your personal finances. A lot may have changed over the last year: a new job, a pay raise, or a family emergency. Taking a few hours to sit and review your finances could help you save money in the upcoming year.

New Year’s Resolution

What was your financial New Year’s resolution for this year? Did you achieve your financial goals? If you did, congratulations! If you didn’t, no worries. Many of us have good intentions of sticking to our resolutions. The important thing is not to give up. You may have to reevaluate your goals. What was it that made it difficult for you to keep your goal? Sometimes we can set up goals that are realistically difficult to achieve. This year adjust your goals so you know it is something that you can achieve.

Credit score

We have all seen the commercials that depict that we need to constantly know our credit score. Yes, it is important to know, but you do not have to monitor it constantly or even pay for it. You can request a free credit report from each of the three nationwide credit reporting companies, Equifax, TransUnion, and Experian within twelve months. You can space them throughout the year or receive them all at once. There are also other situations that can warrant a free credit report. You can learn more at http://www.consumerfinance.gov/.

Spending and budget

Understanding how you spend and save is a valuable step to helping put your financials in order. Review your spending habits and patterns. Have you been able to stay on budget? Reevaluate your spending ratios. Your spending ratio is the amount of money you use on a specific category within your budget. Monitoring the amount spent on each category can help you decide if you are spending too much on one category and not enough on another. Every household budget is different depending on the dynamics of your household. These ratios are a general guide that you can use to help you improve your spending and stay on budget:

  • 35% – Housing Costs is normally the largest portion of your budget. This will include rent or mortgage payments, maintenance and repair costs, insurance, and your utilities (power, water, cable, telephone, etc.). If you spend more than 35% of your income for housing, you may need to find ways to decrease your spending such as lowering your power bill or removing premium channels from your cable bundle.
  • 20% – Transportation includes car loan payments, insurance, fuel, and repairs and maintenance. If you spend more than 20% of your budget think about finding a lower insurance rate, carpooling, or downsizing your vehicle.
  • 20% – Living expenses are comprised of how much you pay for food, clothing, medical insurance and costs, and other personal expenses such as entertainment, personal upkeep, and so forth. Many of the components in this category may not cost a lot but when added up they can be quite costly. This category is also the best place to find ways to be thriftier.
  • 15% – Debt other than your home mortgage and car loans fall under this category. This includes student loans, credit card payments, personal loans, store charge cards, and other unsecured loans. Make more than the minimum payments on your loans.
  • 10% – Savings is the last category. This category is a bit more flexible. If you find that you are saving more than 15% of your budget , consider using the money allocated for savings to pay off your debt. Once your debt is paid off you can start building up your savings.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

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