Like a good spring cleaning, a financial checkup is necessary each year, or even semi-annually. I have some friends that tinker with and try to optimize their finances all the time, but I find that to be excessive. However, too much evaluation is better than none.
Each week, you should review the purchases you have made with your credit card and verify each expense paid from your checking account. This is to ensure that all of the expenses you incurred are indeed true and accurate. We hear too often of horror stories when it comes to fraudulent charges or identity theft and how much work it is to clean up that kind of mess. If you are verifying your purchases on a weekly basis, you will be able to spot unusual charges before they potentially spiral out of control.
I would encourage you to also look at your billing statements monthly. Ensure that your TV, Internet, and providers don’t slyly increase your bill. It’s easy to not take action if you see a bill or two creeping upwards. However, it never hurts to call the service provider. Often times that phone call can result in an even lower bill amount.
Additionally, if you do a little bit of research to see what other providers are offering in the area, you can present the representative with a new rate that you would like to pay. The key is to be pleasant and even smile while you are talking, even though you are on the phone. Psychology has shown that if you smile when you talk on the phone, that it is reflective in your voice, which will be evident to the other party on the phone. You can also remind the provider how long you have been a customer and that you would like to continue remaining a customer with them if they will work with you on billing. Often times, the service provider will do whatever it takes to not lose your business.
If you can’t stand talking on the phone and you are willing to share some of the savings, you can outsource it to BillFixers, who will offer to cut your bill without having you sign a contract if you are willing to share half of your savings. It’s a win-win if you really hate negotiating and spending extra time on the phone.
On a yearly basis, certain areas of your finances should also be reviewed.
This requires yearly checks in order to ensure the proper coverages for your car, home, life insurance and even your umbrella policy.
Each year you should make a couple of phone calls to ensure that that you paying a reasonable price for coverage. By making a couple of calls to some reputable insurance brokerages, you will quickly be able to determine if you could be saving money. For example, I thought I had the lowest insurance quote for years on my vehicle. But, since I had become complacent, I did not realize that I could have lowered my insurance my hundreds of a dollar a year if I had switched to another company. This amounted to over a thousand dollars that I could have saved if I had only made a few phone calls. Now each year, I ensure that I make these phone calls, and I recently saved a significant amount on my homeowners insurance by doing so. I don’t know about you, but I think it’s worth it!
Does your budget still make sense? Are you still saving for a special vacation or can you allocate those dollars elsewhere? Do you anticipate needing to replace your car soon?
When is the last time that you looked at your emergency savings account? Do you still have the three to six month worth of expenses? This is the time to ensure that you are still covered in case of an emergency.
Is your will still up-to-date? Does anything need to be adjusted based on any new circumstances? Are you still comfortable with the people you have designated as beneficiaries? Are you still up-to-date with your beneficiaries of your retirement plans and life insurance plans?
Yes, this is under the “yearly” check and not “monthly”. I know most people think that if they constantly tinker with their investments, that they will be able to optimize their portfolio. However, studies have shown that people who actively manage and tinker with their money actually have lower returns. This is because when it is the perfect time to get back into the market after jumping out, people usually wait too long and miss the massive upswings in the market because they are expecting the market to drop again. These are the people that buy high and sell low. I know I sound redundant, but trying to time the market is a fool’s game. Once your money is in the market, be a long-term investor.
Now I’m not saying that you should never look at your investments. I’m just saying that assessing semi-annually is sufficient. My father-in-law received some shares of United Health Group many years ago. He completely forgot about them until he started to receive quarterly dividend checks in the mail. For the life of him, he couldn’t remember where the shares were held. Finally, after a year of research, I figured out where the shares resided and had them moved into an account he could receive the dividends as a DRIP. Over time, these shares have risen over 2600%. This is one of the top 10 performing stocks of the last 20 years, and he didn’t even remember that he owned it. This shows you if you own a good company, you really don’t need to tinker.
When To Tinker
- When one of your positions has grown very large, and you would like to spread out your risk among stocks. For instance, let’s say you work for Amazon, and when they had their IPO, you received 1,000 shares as an employee. Over the years if you continue to accumulate shares in the company, Amazon would probably be a very large percentage of your portfolio, and maybe more than you wish. In order to keep your stock position properly diversified, it may be wise to tinker. Side note- I wish this was my problem.. Amazon has done fantastically over the years and anybody lucky enough to have shares in it have done extremely well.
- When your financial picture has changed due to age. When you are younger, you can take on more risk. However, as you get older, you may decide that you would like to become more conservative to maintain your wealth as opposed to grow it. This is wise if you need the security of a fixed income each year, which bonds provide. As a younger investor, having a larger percentage of bonds in your portfolio may not make sense given the time horizon that you have before retirement. As you get older, it may make sense to revisit yearly to ensure that you have the proper asset allocation for your appropriate risk tolerance in conjunction with your age.
Hopefully this has been helpful in providing a basic guideline to regularly checking certain financial areas that can be overlooked but are important. Do you conduct regular financial checkups? Have you made any drastic changes accordingly? Share your thoughts below.