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Financial housekeeping for the New Year: Part I

Check your credit report and adjust your budget

Published: January 18, 2014 12:15 AM

Photo: Eric Hood

Now that the New Year has arrived, it’s a great time to figure out how 2013 left you off and make any necessary adjustments. Whether you’re retired and living on a fixed income, in the midst of a busy career, or just starting out, a few days of financial housekeeping at the start of the year can help you save money, get the most out of your investments, and avoid the mistakes of the past.

This is the first of three reports with tips on what you can do now in preparation for a more prosperous 2014 and beyond. The second part addresses updating your home inventory and reviewing your insurance. The third part looks at reassesing your investments and examining your direct deposits, automatic payments, and other financial "systems."

Check your credit standing

January is the perfect time to visit annualcreditreport.com, where you can get one free report from each of the three major credit bureaus every 12 months. A smart trick is to download a report from one of the bureaus in January, another in May, and the final one in September. That way, if a mistake or other problem occurs in your credit file during the year, there’s a greater chance you’ll know about it sooner.

If you do find an error, report it to the credit bureau and order your other reports immediately to make sure they don’t contain the same mistake. If your reports are error-free and you handle credit responsibly, your credit score will take care of itself, so there’s no need to buy it. 

For more information, read our "Credit-Report Errors Can Cost You Plenty."

Update your budget

A properly organized and managed budget can help you avoid getting into debt and achieve your financial goals, whether it’s a well-financed savings or retirement account, a college savings plan, an emergency fund, or anything else. As long as you’re within your spending limits, you can splurge on extra goodies without having to feel guilty. And despite what you may think, budgeting doesn’t have to be complicated.

The main idea is to figure out how much you’ve been spending and earning overall and then set goals. The difference between your monthly income and spending is what goes into your general savings or retirement. If there’s little or nothing left, it’s time to make some choices. Do you really need 500 TV channels? Can you negotiate discounts on ongoing services, such as telecommunications? Can you switch to a credit card that features better rewards and lower costs?

To make tracking your spending easier, create broad categories, such as mortgage or rent, utilities, insurance, and car loan payment. For keeping tabs on everyday spending, make a category for one or more credit and/or debit cards, and use those for most of your general purchases. If you end up going over budget, reduce your spending as much as possible on everything you can until you're back under control.

Of course, if you want to track your spending more closely to determine, for example, how you’re spending each month on pet food and dining out, go right ahead. The main thing is to set up a budget that won't drive you crazy trying to maintain it.

One caution: Don't put major purchases, such as an emergency roof replacement on your home, into your monthly operating budget, or you'll probably bust it. Major spending should come out of your savings or emergency fund, or from an account set up for a particular purpose, such as replacing your car. If you’re financing part of a major purchase, take any significant down payment out of savings and include the monthly payments in your operating budget.

Anthony Giorgianni

   

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