This was originally published on Monday, November 7 ,2016 in the Pacific Daily News. Click here to subscribe to the PDN.
It is November and very soon we will be ringing in 2017. As festivities get started, it’s time to step back and take a look at your personal finances.
Take time to reflect back to the start of the year. Have you meet your personal financial goals or did you fall short? Maybe your life took an unexpected turn and you may need to re-evaluate your goals. Reviewing your personal finances before the year ends also gives you some time to make adjustments that will affect you when tax season rolls around.
Get organized. Life is hectic and sometimes filling paperwork is not a high priority. But getting organized will create a solid picture of your financial behavior and habits. It will also help ease the strain at tax time if you start with files that are well-organized and comprehensive. If you itemize deductions on your tax return, organized statements will help you quickly track down important purchases. Ensure that your files are well-organized and stored in a place that will be easily found come tax time.
Spending and budget. Understanding how you spend and save is a valuable step to reviewing your spending habits and patterns. Did you stay on budget this year? Re-examine your spending ratios, the amount of money you spend 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:
- Housing costs are normally the largest portion of your budget and should account for 35 percent of it. This will include rent or mortgage payments, maintenance and repair costs, insurance, and your utilities. Decreasing your power consumption can make a huge difference in this category, along with streamlining your cable services.
- Transportation costs are the second largest category. Approximately 20 percent of your budget should go to car loan payments, insurance, fuel, repairs and maintenance. If you spend more than 20 percent of your budget, think about finding a lower insurance rate, carpooling or downsizing your vehicle.
- Living expenses are similar to transportation costs — 20 percent of your budget. Living expenses include food, clothing, medical insurance and medical costs. It also includes entertainment, personal upkeep, hobbies and more. This category may be a bit more deceiving, as many of the components in this category may not cost much, individually. It can add up quickly and be quite costly. This category is the best place to find ways to be thriftier.
- Debt should consume the second smallest portion of your budget at 15 percent. This category doesn’t include your home mortgage and car loans. It includes student loans, credit card payments, personal loans, store charge cards and other unsecured loans.
- Savings is the smallest category coming in at 10 percent of your budget. This category is a bit more flexible. If you are saving more than 15 percent of your budget, consider using the money allocated for savings to pay off your debt. Once your debt is paid off you can start rebuilding 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 email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.