You probably go to the doctors for regular check ups. Even the car, you’ve been intending to replace for a year now, gets regular check ups and suspiciously pricey tune-ups. So why do so many of us fail to assess our financial health? I’ve put together some steps to help you determine just how financially healthy you are. So grab a calculator, take some deep breaths, and say “aaaahhh.”
1) Figure Out What You’re Worth (Net Worth).
Subtract your debt from your assets. The number, you’re left with, is your net worth.
- The obvious examples of assets are cash and other securities, the current value of your property and the equity in your home. Simple.
- Your debt could be the balance remaining on your credit card, your overdraft, the loan from your car, your mortgage or your student loan. It is any money that you owe.
- If you’re staring at a big number, don’t get too excited. Net worth isn’t everything. You could have incredibly valuable antiques displayed in your home and yet still struggling to pay your bills. That’s where cash flow comes in.
2) Ascertain your monthly cash flow.
How much money are you spending compared with what you’re receiving each month?
- Tally your household income and subtract your total spending. Exclude anything you’re saving or investing. Wa-lah, you have your cash flow. See, this isn’t so hard.
- The larger the cash flow, the more financial breathing space you have. If there’s a minus sign in front of your cash flow figure, you’re going to accumulate more debt each month.
3) Determine your savings rate.
Divide your monthly savings by your income. This includes contributions to your retirement funds too. Personally, I would recommend a 20% savings rate, but obviously the greater the number, the more savings you’ll be stashing away.
- Strive to save more if your savings rate is less than 20%. Even if you increase your savings by 0.5% each month, it’ll result in a much-improved financial health over time.
4) Have you purchased the necessary insurance?
Different types of insurance are required for different situations. My advice? Don’t leave any rock unturned with this one. Ask yourself all of the “what if?” questions; if you can imagine it, it can probably happen. Make sure you’re insured for all eventualities.
- Start by protecting your home, health, income, and valuable assets.
p.s. Insurance played a significant role in ensuring both my Dad & I received the best medical care whilst our finances are left intact.
5) Do you have an emergency fund?
Life is full of surprises. Some surprises are great, but others can be expensive. If you lose your job, or the car, you still haven’t replaced finally, falls apart, you’ll need some finances to fall back on. I would set aside 6 months worth of living expenses. That might sound daunting, but remember, you can start by saving a little at a time. Every bit counts.
6) Are you expecting to pay for major expenses in the near future?
Are you in a position to handle the replacement for your car or the college fees for your child?
7) Decide how much you need when you retire
A quick Google search will yield hundreds of calculators (or you could download my toolkit – click here) that can give you an idea of the expected value of your nest-egg.
- The question, you need to ask yourself, is whether you are on schedule to retire with adequate financial resources?
Your answers to these questions should provide key insights to your financial health. Keep an eye on your financial health. Doing so will result in choices that enhance your financial well-being, and I think that’s the easiest way to keep the doctor away.
Once again, thank you for reading. Remember to click “share” if you like the article. Have a great week ahead!