On a regular basis, it is a smart idea to review personal finances and do some fine-tuning. This will ensure that you are on track with your financial goals. Below are the different areas that should be assessed, targets, and how to improve each area to get back on track. Following these guidelines will make anybody more financially responsible.
You will need:
• Internet access
• Mortgage statement
• Credit card statements
• Car loan statement
• Student loan statement
• Financial portfolio
Step 1: Review asset allocation buy using the free Instant X-Ray tool from Morningstar. The allocation of cash, stocks, and bonds will be reflected on a pie chart. Begin with a 50 percent stock allocation and adjust this depending on risk tolerance, goals, and age. Spread investments among small and large companies, domestic and international corporations, and value and growth investment strategies. Rebalance this annually or incorporate target-date mutual funds.
Step 2: Review the credit report and credit score. One free annual credit report from each major credit bureau may be obtained from the Annual Credit Report Web site. By paying $19.95, the credit score can be accessed. The FICO credit score ranges from 300 to 850, with a score of 700 reflecting good credit management. To improve the credit score, pay bills on time, even if this means making only the minimum payment. Limit the total credit card balance to no more than 30 percent of the overall credit limit. Immediately dispute any errors on the credit report.
Step 3: Calculate the recurring monthly debt by adding up mortgage, credit card, car loan, and student loan payments. Divide the total by the monthly gross income and multiply the result by 100. This is your debt as a percentage of your income. The overall debt should be no more than 36 percent and the housing payment should equate to 28 percent or less of gross income. To address the situation, begin by paying off debts with the highest interest rates, like credit cards. High interest rate card balances can also be transferred to cards with lower rates, but take transaction fees into account.