We're halfway through 2022, but have you given your finances their yearly checkup yet? After all, you go to the doctor for checkups, take your car for mechanical inspections, and schedule vet appointments for your pets. Why not do the same for your finances? Taking a little time to ensure that everything is running smoothly can have several long-term benefits. Here are a few things that you should take a look at during your checkup.
Credit Reports & Scores
Did you know that you can get three free credit reports per year? Checking your credit report can help you see where your finances currently stand. There are three main credit bureaus that can give you a copy of your report: Equifax, Experian, and TransUnion. You’re allowed to request a free copy from each of these companies once every 12 months. Depending on who you go through, these reports may or may not include your credit score.
Debt-to-Income Ratio (DTI)
A DTI compares your monthly income to the amount you spend paying your debts each month. For example, if you make $4,500 per month and typically spend $1,800 on debt payments, then your DTI is 40% (1,800 is 40% of 4,500). DTIs higher than 43% can make it difficult to get approved for a mortgage or other financing. This is because it can cause lenders to be concerned you're living outside your means and will have trouble making payments down the line. If you’re worried about your DTI, take a few moments to create a formal budget to see if there are places where you can scale back your spending.
Retirement & Health Savings Funds
Make sure you’re making the most of your retirement-account contributions, especially if your employer offers a 401(k) contribution-match program. Contributions to your Individual Retirement Account (IRA) or 401(k) may help to reduce your taxable income when tax season rolls around.
If you have health insurance through your employer, you can check to see if they offer Health Savings Accounts (HSAs). While these accounts are often part of high-deductible plans (and therefore aren't always for everyone), they may include contribution matches from your employer.
Ideally, you should have three to six months of living expenses saved up in case of unemployment, health issues, or any other unexpected occurrence. Learn more about building up your emergency savings here.
Have there been any major changes in your life during the last six months? Maybe you’ve gotten married, added a new member to the family, or had a child who graduated high school and is headed to college. These can all affect your finances. Make sure you’ve made the proper adjustments to accommodate them. Specifically, have you changed your life insurance policy to go to your spouse, updated your W-4s, started a college fund, or sat down with your teen to talk about financial responsibility as they leave home for the first time? These are all things you’ll need to consider as you begin a new chapter in life.