Basic Financial Planning for Newlyweds
Step 1: Calculate Your Financial APGAR Score
Your Initial Financial Plan:
Interested In Earning More Interest On Your Savings?
The term "APGAR Score" should already be familiar to people who've experienced the birth of a child and to people in the medical community. Immediately after birth, every baby is evaluated by a doctor to determine its medical condition. The evaluation consists of the following five signs: appearance, pulse, grimace, activity, and respiration. The APGAR score ranges from 0 to 10 and serves as an initial indication of the baby's overall health.
Anyone looking to gain control of their financial affairs must first get a sense of where they stand. At NewlywedFinances.com, we've developed a variation of the APGAR test to help people make an initial self-evaluation of their financial condition. The five financial attributes of our APGAR test are as follows:
In this first step, you compare your net investments, your age, and your income. You first need to calculate the total fair market value of all of your investments assets, excluding your principal residence and your cars. Make sure to include non-retirement savings, retirement savings, and any other investments that you may own. You should then calculate the total of all of your debts, excluding any loans on your principal residence and your cars. Don't forget to include your student loans and your credit card debts.
You should then subtract your total debts (excluding loans on your principal residence and your cars) from your total assets (excluding your principal residence and your cars) and:
Payment of Credit Card and Consumer Debt
In this step, you'll take a look at your credit card habits. Always maintaining a balance on your credit cards can really cause your financial position to erode significantly.
Got Life and Disability Insurance
Life insurance and disability insurance are two key ingredients to a successful financial plan. Generally, a person will obtain life insurance and disability insurance either as part of their benefits package provided by their employer or on their own through an insurance salesperson or financial advisor.
Besides one's home, automobiles are generally a person's largest purchase. The car you drive is also perceived as a status symbol and can be an area where even the most frugal person would consider being extravagant. How long do you generally hold onto your cars for?
Owning a home is an essential component to most financial plans. Home ownership provides a hedge against inflation and a tax-free means of accumulating wealth. For this step, you'll need to know the fair market value of your home and the current balance of any mortgages and equity loans on that property.
If you own a home, you must calculate the value of your home's equity by subtracting the current balance of your mortgages and equity loans from the current fair market value of the home.
APGAR Score Card
Interpreting Your Score
If your score is 8 or higher, you appear to be on the right track with your finances. Take a look at any attribute that didn't score a 2, and see if you should make any changes.
If your score is between 5 and 7, you have a pretty big job ahead of you. You should try to determine which of the financial attributes need work and put together a plan to make improvements in those areas.
If your score is 4 or less, you have lots of work to do. Take a deep breath, and make a commitment to get your finances on track. Keep in mind that the challenge you face may be daunting, but it is not insurmountable.
How Clean is Your Credit Report (and Your Spouse's)?
Good credit is like money in the bank. Without it, all of your financial dealings become a lot more difficult. When your credit score is calculated, these five factors are taken into consideration:
As part of working through your initial financial plan, you should take a look at your credit report as well as your spouse's credit report. Get Three Free Peaks At Your Credit Report Each Year.
Here's some additional articles about basic financial planning that you might find interesting:
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