Whether you have just emerged from a financial backlash or are experiencing an investment boom, conducting a financial checkup is a must. Financial advisors have suggested conducting annual financial checkups in order to avoid the bumpy roads of the financial journey.
But what actually is a financial checkup and what essentials do I need to consider while performing a financial health checkup? Here is everything you need to know.
Just as regular mental and physical health checkups are important, conducting an annual financial checkup is compulsory to keep your financial goals on track. This financial examination will help you determine how your financial goals are performing and ways you can improve their performance.
Financial Checkup Definition
Just like you visit your doctor to examine how your physical health is; financial experts have exposed us to a new term that they call ‘Financial Checkup’. It is a holistic review of your overall finances and experts suggest performing such checkups twice a year.
A financial health checkup enables you to know how you are managing your money, whether or not you are following your financial strategies, if you aren’t following them what precautionary measures should you take to cope with them.
Now, what is the ideal time to run a financial health checkup? According to financial experts, the start of the New Year and the end also is the perfect time to take stock.
Financial Checkup Importance
When it comes to health, people will mostly think about their mental and physical health despite the fact that financial health is also important for the wellbeing of an individual.
Research also backs the fact that a financial crisis has a considerable effect on the physical health of an individual
According to a research article published in the year 2015, people suffering from financial crises have shown higher stress levels and poor health conditions. Thus, conducting financial health checkups is as important as consulting your doctor for your physical and mental health.
Performing A Financial Checkup
Following are the factors you need to assess while running a financial checkup:
Number One: Evaluate Your Goals/Strategies
The foremost thing you need to consider while conducting a financial health checkup is your financial goals. Take a glance at all your strategies and figure out how you are coping with them.
Identify the loopholes and determine the cracks that have caused delays in accomplishing your goals. Make sure you have listed all the dodges so that you will be more conscious about them the next time.
Number Two: Assess Your Budget
Your budget is the foundation of all your spending, if you already are maintaining a budget it will be easier for you to assess your financial health. However, without having a budget you might not be able to examine your financial growth.
Check all your bills and expenses, highlight the days when you incurred the highest expenses, look for the reasons behind them, and take notes for the future. Checking every single expense incurred during the year or half might be difficult if you are managing a manual budget. So, financial experts suggest using budgeting applications to easily track your expenses.
Number Three: Review Your Assets
Assess the value of your assets and figure out the major changes. Although the value of assets may change every year, you will be required to find the maintenance cost of each.
Evaluate the maintenance cost and align it with the output you are getting from that particular asset. If your maintenance cost is greater than the revenue earned, consider selling the asset.
Number Four: Assess Your Debts
Check whether or not your debt amount is swelling or declining. If you had any student loans or credit card debts, how much were you able to pay during this financial year? If you find a significant decrease in your debt, your financial health is prospering. However, if your debts are swelling, it might be a negative sign.
If it is taking longer to repay the debts, the interest rate will keep increasing and may disturb your budgets in the longer run. So, prioritize the debts and return them as soon as possible.
Number Five: Credit Card Score
Another important factor to consider while checking for your financial health is your credit card score. If you are having a good credit card score, it means you are moving in a positive direction. If not, consider cutting off your expenses.
If you have found your credit card score to be negative, you will be required to adopt some good financial practices. Here we have provided some of the financial habits that will help you cope with the credit score:
- Make sure you are paying all the bills timely.
- Never spend on luxury items while you are paying debts. Spend only if it is necessary.
- Never spend more than your earnings.
- Pay off the debts as soon as possible.
- If your credit card debt is soaring uncontrollably, stop using your card until you pay off all your debts.
Number Six: Check Your Insurance Coverage
A financial health checkup is essential to avoid any unexpected financial hurdles in the future. Quite similar to these financial checkups, maintaining insurance coverage is also crucial to face any financial emergencies.
If you already are insured, make sure you are coping well with your installments so that it doesn’t turn into a liability. However, if you are not relying on any insurance coverage, it is never late. Insure all your assets to keep your financial planning on a positive side.
Number Seven: Are You Saving Enough For Your Retirement?
Conducting a financial checkup can also direct your attention towards necessary saving plans. Figure out how much have you contributed to your retirement plan this financial year? Compare the progress with the savings from your last year. If you are able to witness considerable growth in your savings compared to previous reports, you are preparing well for your retirement, if not you might need to give it a thought.
Number Eight: Have You Added To Your Emergency Fund This Year?
While running your financial checkup, make sure you count in the emergency funds. Have you added to your emergency funds this financial year? If not, your financial well-being may deteriorate at any point in the future.
Yet again, it is never too late! Start planning about your life after retirement. How are you going to fund your expenses while you are not at the stage to earn anymore? Well, this is when you will rely on your retirement funds.
Once you have assessed all the above financial factors, develop a checklist of both negative and positive points from your financial points. Just like a doctor writes a prescription to cover your health problems, plan and write how you are going to overcome the challenge in your future. Also, the negative factors will help you understand what factors you are required to avoid in the future.
Related: 5 Bad Financial Habits That Kill Your Millionaire Dreams
Key Takeaway Points
If the results from your financial health checkup are negative, consider quitting all the below bad financial habits.
- Stop spending on unnecessary things.
- Pay off your debts as soon as possible.
- Don’t use your credit cards if your credit card debt is increasing.
- Cut off your spending if they are exceeding your earnings
- Follow a well-crafted budget.
