Preventative Maintenance for Your Finances

Have you ever been driving down the road, and seen a blue cloud of smoke billowing out of the exhaust pipe from the car in front of you? You feel like you are going to suffocate as their fumes begin to blow through your car's vents, so you pass them as quickly as possible. As you pass, you notice that the car isn't that old, it could even be newer than the one you are driving?

Many of us own cars, and those cars require regular maintenance. Regular oil changes, tire rotations, inspections and emissions testing allow your car to run at peak performance for many years. In most cases, the car blowing blue smoke wasn't maintained on a regular basis, and the owner's neglect is beginning to show.

Preventative maintenance keeps our cars running longer without major overhauls on the engine or transmission. The same can be said of personal finance. Regularly reviewing your budget, maintaining an emergency fund, setting savings goals for purchases, and contributing to retirement helps you prevent major issues down the road.

For example, as I wrote back in my post entitled 'Another Debt-Free Christmas,' regular contributions to our gifts account allowed us to avoid the regret that comes with a January credit card bill. My wife and I planned ahead, and limited our purchases to our budgeted amounts (although we spent more for Christmas 2010 than we have for prior Christmases).

For our budget, we review and if there is a larger expense coming, we may divert more funds into that account temporarily. This allows us to reduce the impact on other budget categories and avoid using our emergency savings to pay for these items and events.

Another financial maintenance item we're considering is whether to refinance our house from a 30 year loan (we have 23 years left), to a 15 year loan. This will allow us to 1) get rid of our monthly private mortgage insurance (PMI) payment, 2) reduce the term and 3) increase the amount we pay each month towards the principle, so if we sell in 5 or 10 years, most of the principle will be paid down. With today's low rates, our monthly payment will most likely be only $100 per month more than we pay today. Small adjustments we make to our mortgage today will have lasting impacts on our finances down the road.

Regularly maintaining your finances allows you to reduce the time that you spend paying down loans, avoid finance charges by saving and paying cash, and prepare for retirement.