I like the term financial tune-up more than the term financial makeover. It seems more positive than starting over from scratch with a makeover. However, they really are the same thing. So how can you recognize if you need to make some changes in managing your finances?  If any of the following circumstances* apply to you, a tune-up is in order.

   -Do you have expensive credit card and consumer debt that never gets paid off? You do your best to pay the minimums or just a bit more. But they continue to hang around and every month you lose some of your wealth to what you thought was “easy money” when you took on the debt. Do you find yourself playing the zero percent transfer game by opening up new cards with introductory offers? Be careful with doing that as it never really solves the problem; it just buys you a little time.

-Are you unable to establish an emergency fund? This is often step 1 of consumer finances and you know you should have a few months of living expenses saved in case the unexpected happens (job loss, expensive repair, medical expenses).  In fact, you should really aim to have an emergency fund with enough money to cover three to six months' worth of essential bills. But according to the 2022 Personal Capital Wealth and Wellness Index, only 53% of Americans are in a position to handle an unforeseen $500 expense without worry. Ouch.

-Do you have a bad credit score? FICO considers a credit score to be poor if it falls below 580. According to FICO, a person with a FICO score in that range is viewed as a credit risk. Why? Their research shows that about 61% of those with poor credit scores end up delinquent on their loans. Having a bad credit score can cost you thousands of dollars over your lifetime by requiring higher interest charges on auto loans, mortgages, and credit cards.

-Are you saving for those future events that are important to you? How about saving enough (or anything at all) for your retirement?  Or saving for your children’s education. Or saving for a vacation.  Are you putting it off because you just can’t afford to save for these now?

These are all obvious signs that your financial house is not in order. But with some focus and determination, you can dig out. First start with a budget so you can see exactly where your money is going each month. Focus on some of the big budget items first. Did you overspend on your house or apartment? Did you buy an expensive new vehicle without realizing how much it really costs? For vehicles driven 15,000 miles a year, average car ownership costs were $9,561 a year, or $797 a month, in 2020, according to AAA. That figure includes depreciation, loan interest, fuel, insurance, maintenance, and fees. Next, focus on smaller items. Do you eat out all the time? Has online shopping become a hobby for you instead of buying the things you need when you need them?  Is your closet overflowing with clothes and shoes that you hardly ever wear? How many memberships or other services do you pay for each month that you hardly ever use? You know your poisons because you picked them.

You may have to move to different living accommodations, drive a cheaper car (now is a good time to do this as the market for your expensive vehicle is robust), or cut back a bit on the unnecessary spending habits that you developed. You will develop a new-found sense of control and a less stressful lifestyle.

The reason I’m writing about a financial tune-up is because, ultimately, it will impact your ability to save sufficiently for your retirement. It’s rare to see someone whose overall finances are in bad shape, while their retirement savings is in decent shape. They are connected.

Enjoy the Journey!

*I realize people sometimes must deal with financial circumstances that are out of their control such as a job loss, expensive medical bills, divorce, death, etc. This article is not intended for these situations, rather for those employed folks that never seem to get on a solid financial footing.