Individuals should generally review their financial situation every year or after a significant life event. This process, a financial checkup, helps ensure that you’re aware of all the factors that could impact your current and long-term financial health. Some key areas to consider when performing this annual financial checkup include reviewing such things as your investments, your credit score and current debt-to-income ratio, and evaluating insurance coverage.
Sound financial planning begins with setting short and long-term financial goals.
Steps to Conduct a Financial Checkup
Set Financial Goals
Setting financial goals can be a helpful way to plan for the future and make progress toward your financial objectives. These pointers can help you set sound financial goals:
- Identify your financial priorities: Consider what is most important to you regarding your financial situation. Understanding your priorities can help you set goals that are meaningful to you.
- Set specific, measurable, achievable, relevant, and time-bound (SMART) goals: To make your goals more actionable and easier to achieve, it can be helpful to follow the SMART goal-setting framework.
- Make a plan: Once you have identified your financial priorities and set specific goals, the next step is to create a plan for achieving those goals. This might involve reviewing your investments and risk tolerance or finding ways to increase your income.
- Track your progress: It can be helpful to regularly track your progress towards your financial goals. This can help you stay motivated and make any necessary adjustments to your plan along the way.
- Celebrate your successes: Remember to celebrate your achievements as you progress towards your financial goals! This can help keep you motivated and focused on the long-term.
Setting financial goals is a personal process, and what works for one person may not work for another. The important thing is to find a goal-setting approach that works for you and your financial situation.
Review Your Personal Situation
To review your financial situation, start by gathering all your financial documents, then create a budget with all incoming and outgoing finances.
This not only gives you a full view of where your money is going, but it also helps you identify your investment risk tolerance. By calculating your monthly cash flow and determining how much of that money you’re willing to invest, you can then choose the best investment option for your unique financial situation.
Are you in a position where you want to do something with a high risk/ high reward potential? Or would you feel more comfortable investing in something that’s safer but maybe has a lower probability of a high return?
Regularly reviewing your financial situation will help you make informed decisions about your money and stay on top of your investments.
Protect Your Assets
It’s essential to take steps to protect your assets. One way to do this is through asset diversification, which involves spreading your assets across different investments to reduce risk and produce investment income.
This can include investing in stocks, bonds, real estate, or using a tactical investment approach. It is also a good idea to review your debt-to-income ratio and health insurance coverage and ensure you have adequate protection for your assets, such as homeowners insurance for your home and personal liability insurance for your personal assets.
Creating a trust or setting up a Last Will and Testament with the help of an estate planning attorney may ensure your directives are followed. It is also a good idea to work with a financial planner to help you develop a plan to save money and protect your assets.
Review Taxes Withheld
To review the taxes that are withheld from your income and investments, you can start by gathering your tax documents, including your pay stubs and investment statements. Next, you should review your tax withholdings to ensure that the correct amount of tax is being withheld from your income.
For those with more complex tax situations, you should review your paperwork with a professional tax preparer or CPA. They can ensure that you’re getting every tax credit that you qualify for and can help you to identify mistakes that might have been overlooked. A simple typo, math error, or filing under the wrong status can cost you a significant amount of money if it is not identified and corrected.
We touched on this above, but reviewing your insurance is a big part of ensuring your financial health. You should consider the following:
- Life insurance
- Homeowners insurance
- Renters insurance (for any properties or other assets you currently rent)
- Auto insurance
- Disaster Flood insurance (if you live in a region prone to natural disasters such as flooding, earthquakes, hurricanes, etc.)
Proper insurance helps protect everything you have today and everything you can have in the future.
Check Your Credit Report
Checking your credit report ensures your credit score accurately reflects your financial wellness. Credit scores include your personal debt, such as credit card debt, and provide a snapshot of how well you meet these financial obligations.
Evaluate Other Saving Options
Have you come across other methods you could use to save additional funds? For instance:
- You should have an emergency savings or an emergency fund to which you add a set amount at given intervals.
- Examine the interest rates on all loans and your interest-bearing accounts to see if there might be better options.
Prepare Your Estate Plan
Protecting your assets includes preparing an estate plan with directives regarding asset management and distribution upon death. Preparing an estate plan can seem overwhelming, but there are several steps you can take once you’ve gathered your financial information and determined your goals that can make the process easier:
- 1. Choose your estate planning team: You can work with an attorney to help you prepare your estate plan. Choose an attorney that is knowledgeable and experienced in estate planning.
- 2. Decide on your beneficiaries: Make a list of who or what organization should receive allocations of your assets after your death. This can include family members, friends, charities, or other organizations.
- 3. Create your estate planning documents: You may need to create a will, trust, power of attorney, or other legal documents. An attorney can help you understand which documents you need and ensure each one is adequately drafted.
- 4. Review your accounts: Ensure all retirement accounts and other investments are properly titled..
Performing a financial checkup at least once each year can help you stay on track with current obligations and future financial goals.
Financial Planning Services
Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing, and may include discussions of a client’s tax, insurance, employee benefits, estate planning and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax or accounting advice, and the client must rely on legal, insurance and accounting professionals for that advice and documentation.
What is a Financial Checkup?
A financial checkup is a review of your personal finances. Assessing your current financial situation helps you budget for the present, invest for retirement, understand your current financial health, and identify areas for improvement.
Why Do You Need a Financial Checkup?
There are several reasons why you may need to perform a financial checkup:
- To assess your financial health
- To set financial goals
- To identify opportunities for financial wellness improvement
- To stay on track
How Often Should a Financial Checkup Be Completed?
How often you should perform a financial checkup depends on your financial goals and circumstances. Some people do a financial checkup once a year, while others do it more frequently, such as every six months or quarterly.