Personal Insights

Financial Checkup: Things to Do at the Beginning of the Year

Whether you're fiscally fit or financially flabby, a new year brings a new opportunity to meet your financial goals. First on your to-do list? Assessing your financial wellness to establish your baseline financial health.

"A lot of folks have an annual physical every year with their doctor. Why not do the same thing with your finances?" says Cecilia Bailey, Regions Bank Community Education Administrator, who says the goal of a financial checkup is similar to that of a medical one. "Basically, you want to ensure that everything is working properly and, if it isn't, do what's necessary to fix it."

Here are three actions you can take while the year is young to determine the state of your fiscal fitness:

Set strong financial goals

You can't know if you're healthy unless you first define what "healthy" looks like to you, and that's where setting financial goals comes in.

"Think about what you want to accomplish from a financial perspective this year," Bailey says. "Is it making a large purchase like a home or car? Is it saving more? Is it spending less? You have to understand your motivation."

To determine what measures are meaningful to you, set "SMART" — specific, measurable, attainable, realistic and time-based — goals. Rather than saying "I want to reduce my debt," try something specific like "I want to cut my credit debt in half within 12 months."

"Start small," Bailey says. "If you want to raise your credit score this year, start with short-term goals like pulling your credit report and paying your bills on time this month. All those small goals are what add up to achieving your big goals."

Monitor your progress

Once you've set financial goals, make sure you're on track to achieve them by taking your financial temperature. Bailey recommends completing a simple budgeting exercise: List all your income and all your expenses, and then subtract the latter from the former to see how you fare.

"It may sound very simple, but a lot of people don't take the time to measure their expenses or analyze how much money they have coming in," says Bailey. "Knowing your inflows and outflows will allow you to make necessary adjustments that will put you on track to achieve your goals."

Partner on a plan

You wouldn't conduct your annual physical without your doctor. Nor should you conduct a financial checkup without your financial team.

"Look at all the external partners you have and reach out to them," Bailey suggests. "For example, call your insurance agent and ask if your policies are still appropriate for your situation. Meet with your banker and ask if there are new products you could be benefiting from. Talk to your financial advisor about retirement and your tax advisor. Seek out professional advice because you might not have all the tools you need to fix your financial problems by yourself."

Taking these three steps at the beginning of the year may help you determine where you stand and how to achieve your goals. When you're ready to set long-term financial goals, consider creating a budgeting plan.