Another summer is quickly coming to an end with the start of the new school year upon us. New #2 pencils freshly sharpened. First day of school outfits purchased. For some, it’s the introduction to an entirely new school building as they make the jump from one grade to another. While we love our summers and all they entail, it’s time to get prepared for what lies ahead in the coming months. Generally, the beginning of a new school year is time for teachers and schools to spend time reviewing lessons from the previous year as well as assessing where students are at after a summer away. As parents, this is the perfect time for us to take a financial assessment, reviewing where we’ve been and where we are going.
Some students (and parents) are happier about the start of school than others. My own kids cover the whole spectrum of feelings on the subject! The thought of taking a financial assessment conjures up similar emotions. Maybe you set financial goals at the beginning of the year. This was the year that you were going to make changes financially. Have you moved toward hitting those goals? What financial areas need improvement? Any debt that needs to be dealt with? Anything you’ve been ignoring that needs attention? Have your priorities changed since those New Year resolutions? To help you fully answer those questions, let’s explore some steps you can take to perform a proper financial assessment.
Review your goals
It all starts with what you want to accomplish with your finances as to whether you are on track or if you need to make adjustments. What goals did you put in place for yourself or your family? Trying to pay off debt? Saving money for college funds? Building up your savings? Go back to the beginning of the year and think about what was important to you at that time financially.
Check your credit
Any time you plan to assess your financial health, checking your credit is a good idea. You can get a free credit report yearly at annualcreditreport.com. You also can sign up for free services like Credit Sesame or Credit Karma and get some information as well. Check your credit report for mistakes. You would be surprised at the percentage of people who find errors on their credit reports that affect their credit score (about 1 out of 4 people, according to a study done by the Federal Trade Commission in 2012). If you find errors, work with the credit bureau to fix any issues you’ve discovered.
You also need to look at your credit score. Why is your credit score important? Your credit score, along with other information from your credit report, lets lenders know if you are a risk as a borrower. Often they use your credit score to determine if they will loan to you, how much they will loan, and the terms associated with the loan. The credit score ranges from 300 to 850, with any score over 700 generally looked at as good by lenders.
Track your spending
Want to know where all that extra money you thought you had went? Start tracking your spending and you will answer that question quickly! Our kids love summer break because they get to relax and enjoy their free time more often. Our money likes to do the same thing. It’s hard to resist those extra trips to the ice cream shop (at least it is for my family). Whether you use a spreadsheet, a simple notebook or an App that tracks your spending, take time to track every dollar you spend. Categorize everything so you can see what necessities are and where the leaks in your budget are. It’s easy to justify purchases when you don’t know how much these little leaks add up at the end of the month. Having the data on your hard earned dollars will help you find ways to save, create a more realistic budget, and keep more money in your bank account.
Look at your budget
Do you use a budget? If not, start one immediately. Having a budget will help you reach your financial goals quicker. Not having a budget is one way to ensure chaos and even financial failure. There are tons of different ways to set up a monthly budget. My favorite type of budget (and the one I use) is called a zero-sum budget, but find one that works for your own situation and personality. Budgets work whether you have a steady income or an irregular income. You just need to find the one that fits your family best.
Once you are budgeting, take the information you gathered from tracking your spending to make sure your budget is realistic. Are you earmarking enough money in your budget for every category? Do you factor in miscellaneous expenses? You and I both know we spend money all the time that wasn’t its own line item in the budget. You still have to plan for those expenses, whether it be eating out when you didn’t have time to cook dinner for your family or one of those infamous stops at Target for “just one thing.”
Having an emergency fund is one of the most important financial decisions to make. Begin with a starter fund of $1,000 if you are currently working to pay off debt. Then work to build up enough in your emergency fund in case you are out of work for a few months. You just never know when something bad will happen, but you should know by now that something bad will eventually happen.
I hate to be the bearer of bad news, but the beginning of the school year, in some ways, leads us right into a very busy season financially. Many of our kids play fall and winter sports for their schools or local leagues and recreation centers. Kids need cleats and new uniforms, not to mention league fees, tournaments, and even travel expenses for some families. School means school supplies and field trip fees. The fall brings about Halloween costumes and eventually buying Christmas presents. Do you plan ahead for these expenses or just take them as they come? Your family is going to be better off if you find ways to save ahead. Make a list of everything you can think of that you know will have expenses associated with it and come up with a savings plan that fits in your budget.
While nobody really enjoys assessing their family’s financial health, doing so ensures a more successful future. As you are thinking about sending kids back to school in the coming weeks, take time to go back to school with your finances. The quick review could make the difference between a fruitful fall and just scraping by by this year.