You have a financial plan, now what? Regular financial checkups need to be a key part of your ongoing financial planning. This is an exercise that has best results when performed at least quarterly, so that you can keep tabs on where you are at, and catch deviations from your financial plan early on and correct them. If you have one, your financial checkup should be performed with your partner. You can also include children if they are old enough to be actively interested in family finances. (Showing children how to care for finances through a checkup sets a good example.)
Elements of a financial checkup
There are some basic things that should be covered when you do your financial checkup. The exact format can change, and be adapted, but here are the essential items to consider when examining your current financial situation:
- Honesty: The first thing to do is commit to honesty. You have to be willing to look at your finances in a fashion that can seem brutal. But you have to get it all out there in order to have an accurate picture of your financial situation, and where you need to go from here.
- Financial priorities and goals: What are your financial priorities and goals? Review what you find important, and take a look at what you want to accomplish. Have some of your priorities changed? Do some of your goals no longer apply? Decide what adjustments to your expectations need to be made, and evaluate your past spending and see if it has been matching up with your priorities and helping you reach your goals. Re-stating your priorities and goals will set the tone for the rest of your financial checkup, since you can conduct it with an idea of what you hope to accomplish.
- Income and assets: Take a look at how much you have coming in each month (or each quarter). Look at regular income from a traditional job, as well as any other side income, investment income or passive income that you might have. Determine how steady that income is, and whether or not some of it is in danger of being reduced. You should also look at your assets, including investment accounts, emergency funds and equity that can be tapped in the case of an emergency or loss of income. Make sure you are adequately prepared for possible changes to your income situation or a large unexpected expense.
- Current obligations: Review your current debt obligations and monthly bills. If you are trying to get rid of debt, decide if you can spare more to reach that goal. Decide what obligations should receive highest priority, and adjust your spending accordingly. Look at your spending to see where you can cut back if you are having trouble meeting your obligations.
- Asset protection: It is also important to look at whether or not your assets are properly protected. Do you have enough insurance (homeowners, life, auto, etc.)? Do you need to purchase some other type of insurance? You should also examine your investment portfolio to make sure that has some measure of protection through some sort of diversification.
- Future issues and plans: This is also a time to look ahead to things that could impact your finances in the future. Are you planning on having a child? Do you know that your insurance premiums are going to rise soon? Will your teenager begin driving (and need insurance, etc.)? Are there rumors that layoffs will be coming to your company? Glance six to 12 months into the future to see what major events could affect your finances.
After you have done an overview of your finances, and checked your overall financial health, it is time to either make a financial plan, or tweak the plan you already have. Using the information you have discovered in your financial checkup, you should evaluate whether you are on track to reach your desired financial destination. If you aren’t, you can use the results of your financial checkup to make the changes necessary to put you back on course.