Your body isn’t the only thing that needs an annual wellness checkup. Your finances will benefit from one, too.
An annual review of your finances will help you catch problems and avoid mistakes. Consider these areas when determining your financial health:
- Personal balance sheet. List all of your assets (investments, retirement accounts, cash, home/real estate, and other assets). Then, subtract your debts, such as a mortgage, car loan, or credit card balances. This is your net worth, or your financial “bottom line.”
- Household cash flow. Determine your cash flow by subtracting your expenses, including loan payments and standing obligations like child support, from your total income. This will help you identify areas where you may be able to curb spending or increase savings.
- Debt and deficit spending. Are you incurring more debt than you can pay off each month? This indicates that you are living beyond your means. What can you do to cut back on spending or pay off backlogged debt?
- Credit. Have you checked your credit score and report lately? Visit annualcreditreport.com to review your report for free and check for errors. In addition, many financial institutions offer access to a current credit score on their website.
- Cash reserve/emergency fund. Most financial counselors recommend having enough cash set aside to cover three to six months’ worth of bills.
- Future goals. What are your short- and long-term goals (car, vacation, bigger house, college, retirement)? Do you have a savings plan in place for these?
- Asset allocation. Is your mix of assets appropriately diversified for your circumstances, stage of life, and future goals?
- Insurance. Review what types of insurance you have and the level of coverage. Consider if you need to increase coverage or add new types to your portfolio. Update beneficiaries as needed.
- Estate planning. Do you have a will, powers of attorney for health and finances, and living will in place?
- Workplace benefits. Are you taking full advantage of the benefits available to you? Pay particular attention to a 401(k) or other retirement plan match, as this is essentially free money.
Source: Financial Planning Association (FPA)
