My Financial Check-Up: Introduction
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I have finally gotten around to beginning something that I have been meaning to do for a while — a sort of “financial check-up”, taking a moment to re-evaluate my financial management and allocations and make sure that I am happy with the way things are going.
It is almost certainly a good idea to try to do something like this on a regular basis, perhaps annually. Much can change over the course of a year: you might have changed jobs, gotten a raise, relocated to a new area, had a major life event happen, or more. Even if your life seems the same, financial products can change, too - banks cut rates, introduce new accounts, and more.
I plan to cover my financial check-up as a series of individual posts over the course of the remainder of August, covering each issue as I research it for myself. I want to take a moment, though, to introduce some of the questions I plan to look at over the next couple of weeks.
My Primary Checking Account
Should I switch to ING Electric Orange? By and large, I have been pretty satisfied with my current checking account — I have a MyAccess Checking Account with Bank of America that is fee-free as long as I maintain direct deposit, and BoA has convenient ATM and branch locations for me.
But lately, I have been tempted by ING’s Electric Orange account, which is an online-only checking account that offers 1.75% APY for my balance range and no fees. The downside is that you give up branch access, and have to rely on their affiliate network of ATMs. I need to evaluate for what uses I really need a checking account and whether ING will meet those needs, how important branch access really is to me, and whether ING’s ATM network of affiliates will work in my case.
My Primary Savings Account
Am I with the best bank? I have been with Emigrant Direct for years now, and have had almost no complaints with the service they have offered. I’ve stuck with them lately even though they have not had the most competitive rates around (right now, ED has 3.00% APY, HSBC Direct has 3.50% APY). I am not a big fan of rate chasing - moving money around constantly in pursuit of the highest rate, but HSBC might be offering enough of an incentive to move my money over.
How much do I need in my savings? At least right now, with the exception of the small amount of money I keep in my checking account, almost all of my money ends up in my savings account. As I contemplate other factors like a Roth IRA and Emergency Fund, I need to consider how I want to balance the savings with the other accounts.
A Retirement Account
I need to open a Roth IRA. This is not so much a question as it is a statement – I have read the advice for a while, and I have finally convinced myself that it is in my best interest to open a Roth IRA even though I am still in school. Even a little bit of money for a few extra years can make a huge difference when it comes time to retire. The issue for me, however, is that I need a brokerage firm that offers a Roth IRA with low minimums and (hopefully) no fees — so which brokerage is best for me? I suspect that I will ultimately end up going with a Vanguard Roth IRA.
My Credit Cards
I am pretty happy in this regard, and suspect that my combination of Citi mtvU and Chase Freedom cards for almost all of my purchases will continue to be the best situation for me. The only real question I have is how can I best put my rewards to use? I currently have more than enough Citi ThankYou Points to start considering how best to put them to use.
My Emergency Fund
I need to create an emergency fund — how best should I go about this? I have been nurturing my savings account for a while, but I have not taken the step of creating a separate emergency fund. I have read enough posts about emergency funds from other bloggers, however, that I think I need to take the step of creating a separate emergency fund.
My Other Bank Accounts
Which bank accounts are dead weight? Especially in 2007, I frequently opened up bank accounts for the sign-up bonuses which would often be quite lucrative. Now, however, I have all of these checking and savings accounts open at over a dozen banks. Not only is it difficult to stay on top of keeping these accounts maintenance fee-free, but it is also difficult to get an adequate picture of my financial health. I plan on looking into closing some of these accounts and reporting back.
Road Ahead
As part of this process, I also plan on sitting down and taking a look at where my money has been going - I have never really created a literal budget, but I think it will be helpful for me to get a clearer sense of what I am spending my money on as I look for ways to be more fiscally sound. I also plan on both better documenting my finances for myself, creating a sort of financial “master document” that details all of my accounts, as well as improving my records system.
So, these are some of the thoughts that are going through my head as I begin my financial check-up. Stay tuned for more!
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One strategy you might consider is to use one (or more) of those extraneous checking accounts or the new proposed ING account for a specific purpose.
I have two checking accounts - a main household one that I pay all the bills from and a second small one that gets my overtime deposited to it. That one is totally unbudgeted funds for those “indulgences” that crop up - hobbies, concerts and so forth.
This does two things - even though I can count on at least an hour or two of OT every week, I don’t include it in my ‘regular household’ budget, so if/when the opportunity for OT goes away, it won’t hurt so much. And there’s a fairly steady stream of income coming to me for those things that might otherwise tempt me away from my budget.
You can have the best of both worlds (local and internet) and two accounts with their associated savings accounts isn’t a lot to keep track of.
I’ve set up simple net worth and cash flow/budget statements in Excel to track everything. I would, however, close out some of the totally inactive accounts. They’ve served their purpose, and it seems from the way you describe them, they are becoming a drag on your record keeping.
Nice suggestion, karla. I think you’re right that having a separate account or two for different savings/spending goals can be a good idea — personally, I would lean more towards using an extra ING Direct sub-account for holding that money, but perhaps you’re right about using some of the dormant accounts. I’ll have to reconsider whether or not I might be able to find a use for them instead of closing all of them.