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What Steps of a Financial Checkup

Financial planners suggest that at least once per year you complete a full financial checkup.

Just as your doctor tells you to regularly schedule an exam to ensure good physical health, so too should you conduct a financial review to ensure the health of your finances.

A financial checkup equates to a regular review of all your financial interests and holdings. The purpose of this review is to ensure you are making continued progress toward your financial goals. Each time you conduct a review, you may need to make some minor adjustments to your plan to make certain your strategies remain on track.

Normally, you are advised to review your finances annually. However, any time you experience a life-changing event, you should complete a full financial review. For example, if you change jobs, get married, have a baby, get divorced, sell your home, etc.

It’s recommended that you complete a financial checkup at the beginning of each year. This will help you to uncover any potential tax savings that you can report to your accountant prior to taxes being due in April.

A full financial review should consist of the following 7 steps:

1. Assess Progress Toward Financial Goals: - Are you on track to meet your financial goals? If your goals are detailed you should be able to track your progress. If you are unable to measure your progress then you need to establish clearer goals. Assuming your financial goals are well established, confirm that each goal continues to be S.M.A.R.T. (specific, measurable, achievable, realistic and time sensitive) You may need to make some modification to your goals if you feel that a goal is no longer a high priority.
2. Update Personal Financial Statement - a personal financial statement will provide a comprehensive snapshot of your financial picture. Upon completion of this form you will have a clear image of your Assets, Liabilities and Net Worth, as well as your Income and Expense details. If you maintain this form on your computer it will be easier to update. Simply review all the information on the existing form and make any adjustments to update. One key indicator of progress is if your Net Worth has improved since the last time you completed the personal financial statement.
3. Review Insurance Coverage - this is the one single item that is most often overlooked by American households. The sad fact is that the vast majority of people are under-insured, particularly in the area of life insurance. Would your spouse be able to continue his/her standard of living in the event of your untimely death? Other important coverage to review is home owners, auto and health. You should also consider owning a long-term disability policy on you and your spouse in order to protect your ability to generate income should you become disabled.
4. Update Your Wills - if you have not yet created a living will, schedule this right away. This is especially important if you are married and/or if you have children. Having a will in place will keep your estate out of probate. You do not want the State determining how your estate will be handled. If you already have a will, read it over to make sure it still reflects your wishes. If you’ve had another child since you created your will, you should update it to include the newest member of your family.
5. Retirement Plan Assessment - are you on track for retirement? Now is the time to check out your 401k, IRA’s and Mutual Fund accounts. Review the amount of your regular contributions - can you increase the percentage of your income that your are saving? Make sure your investments are well diversified. Do not keep a large percentage of your balance in any one stock - this is too risky for any retirement fund.
6. Plan to Minimize Taxes - if you have been receiving substantial tax refunds you may want to update the withholding allowances. This will increase your net income since you won’t be sending as much money to the government. If you are paying a lot of additional tax at the end of each year, discuss with a tax professional how you can maximize your deductions in order to avoid paying as much. Planning ahead is the best solution for minimizing your tax burden.
7. Review All Debt - when you completed your personal financial statement you were asked to list all of your outstanding debts. Take a very close look at each debt that you have and ask yourself how you can reduce or eliminate the debt. How long will it take to become debt free? Make no mistake about it, debt is not your friend. If you truly desire financial freedom, then you must get out from under the weight of your debt. True freedom exists when you are no longer beholden to anyone for anything. Be sure to review your credit report at least annually. Make sure it shows a true reflection of your payment history and that all your accounts are listed properly.

Once you’ve completed this 7 step financial checkup you will have a very clear picture of your current financial status. The first time you complete this process, it will take some time, but the rewards are well worth the investment. Every time thereafter you’ll find the process to be much easier and it will take less time.

Armed with the knowledge of where you currently are financially, as well as where you’re headed, you can move forward with confidence that you finances are moving in the right direction.

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