1: Identify your financial goals
You are more likely to succeed in accomplishing a goal if your goals are specific, measurable, attainable, relevant, and time-specific. This means determining WHY you want to accomplish a goal, WHAT specifically you are trying to accomplish, WHEN you want to accomplish it by and HOW you will accomplish it.
For instance, if you are trying to pay off credit card debt, you need to ask yourself the following questions: What motivates you to do it? How much do you intend to pay off? By when? And how do you intend to succeed with making payments over the timeframe you’ve chosen? Getting specific with your financial goals is the first step in performing a thorough financial check-up.
2: Understand where you currently stand financially
Understanding where you currently stand with your finances is basically you laying the path for where you are now and where you are trying to get to. It might involve kicking up a bunch of dust that will make you uncomfortable and perhaps even upset, but it’s something that must happen in order for you to move forward.
Determining your current debt, expenses, and income will help you understand what specific areas of your finances need the most attention and help you prioritize accordingly. Facing your finances and taking key steps can help you reach your financial goals.
3: Track your spending
This means taking a look at your daily transactions and expenses. Start by doing this exercise using a spending journal for 7 days and then extend it to 30 days to get a holistic view of exactly where your money is going.
Not only is this exercise eye-opening, but it also makes your finances top of mind. You’ll be thinking about how you spend your money and will be more aware of how much is leaving your bank account. Tracking your spending can also help you see where you can cut your budget. This exercise is an important part of your financial check-up.
4: Make adjustments, review your budget
Once you have an idea of where your money is going, you can make adjustments to your spending to ensure you are keeping your expenses below your income and leaving enough room to do things like pay down your debt and save for your goals. It’s important to review your budget regularly as part of your financial check-up.
Remember that budgeting takes practice, so don’t assume you’ll be perfect at budgeting on your first try. If you slip up, keep trying. It’s also a good idea to plan your budget for each month a couple of days before the month starts so you can lay things out properly in terms of what you expect to be paying for each particular month.
5: Review your savings and investments for the long-term
Next, you want to make sure you’re putting away some money in an emergency fund. This is money to buffer your finances in the event of any unplanned life circumstances (your car breaks down, you lose your job, etc.).
Set a goal to get to xxxx amount of money if you don’t already have a fund in place and then plan to grow your fund to 3 to 6 months of your basic living expenses. This way, if an emergency happens, you have this money to use instead of borrowing money or getting into debt.
It’s also very important to save for your mid and long terms goals, including your retirement. This means contributing to your employer-sponsored retirement programs, setting up your own RA, and having investments outside of your retirement plans. Diversifying your investments can help secure your financial future. Challenge yourself to max out your contributions by making 1% increments every month of every quarter until you can reach the allowed contribution limits each year.
6: Get properly insured
A crucial part of a financial check-up is reviewing your insurance policies to ensure you have enough coverage for the type of incidents that may incur. Having the right insurance policies is vital to protecting your assets. Not being properly insured can cause you expensive out-of-pocket costs that could have been prevented with the right insurance policy. Speak with your agent to be sure you understand what your insurance covers and doesn’t cover.
7: Check your credit report
When’s the last time you checked your credit report? Did you know you can pull your credit report free once a year? Your creditworthiness is used to determine your eligibility for things like cell phone contracts, renting an apartment, and being approved for loans. Having a good credit score and credit history can help you get lower interest rates, which results in you saving money! Checking your credit is an important part of a financial health check-up.
8: Review or create an estate plan
Reviewing your estate plan is a vital part of your financial health check-up. If you don’t have one in place then you need to create an estate plan to be sure your finances are in order. This plan can ensure that your wishes are carried out and that your family is financially cared for. Your estate plan will designate your beneficiaries to your assets. Without an estate plan, your assets will go into probate, which means the courts will decide how your assets will be distributed.
9: Get accountable
Now that you know exactly how to do a financial health check-up, the next thing you should consider is getting an accountability partner or partners. These are people that you share your goals with who are on the same journey as you or have accomplished something you are trying to achieve.
Their job is to keep you motivated and on track (and vice versa) when you don’t feel like it, or you aren’t having a great day, week, or month (because these things happen!) Putting your goals out there make you more likely to achieve them because other people know about them!
Regularly perform a financial check-up
Like your budget, you should do a regular financial health check-up. Set a reminder on your calendar to review your finances on specific dates. If something changes, such as your salary, a personal situation, or your debt increases, you will want to be sure to do a financial check-up. Staying on top of your money is essential to your financial wellbeing.
Compiled by Ms. Dikeledi Seoloane on behalf of Matsobanemetja Business Consulting (Pty) Ltd – Registered Accountant and Certified Tax Practitioner.
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