Money Fundamentals

Financial Checkup: How to Review Your Money and Finances

A financial checkup is a vital tool for maintaining financial health and achieving your long-term financial goals.

It’s time for a financial checkup.

Whether you’re just starting your financial journey or looking to reevaluate your current status, conducting a financial checkup is essential. It’s a vital part of the financial planning process.

What is a financial checkup?

A financial checkup is a periodic assessment of your financial health. Like a medical checkup, it involves reviewing your finances to ensure everything is on track and helps identify opportunities for improvement.

A financial checkup typically covers several areas: income, expenses, savings, investments, debt, insurance coverage, and long-term financial goals.

Financial Checkups Include

  • A budget review to determine if you’re living within your means and identify unnecessary expenses.
  • Assessing your savings accounts to ensure you have an adequate emergency fund and are saving enough for future goals.
  • Investments are reviewed to ensure proper diversification and progress.
  • Debt is assessed to determine if you’re on track to pay off debt.
  • Insurance coverage is reviewed to ensure adequate coverage for changing needs.
  • Long-term financial goals are reassessed to ensure you’re on track and make any adjustments to financial plans.

Let’s check your financial health.

Step 1: Take Stock of Your Assets

Begin by compiling a detailed list of all your assets. This includes:

  • Cash and Savings: Bank account balances, cash on hand, and any liquid savings.
  • Investments: Stocks, bonds, mutual funds, retirement accounts (401(k), IRA), and other investment vehicles.
  • Real Estate: The value of your primary residence, rental properties, or any other real estate holdings.
  • Personal Property: The current market value of vehicles, jewelry, artwork, and other valuable possessions.
  • Other Assets: Any other assets such as business ownership, intellectual property, or valuable collectibles.

Add up the value of each asset to determine your total asset worth.

Asset CategoryDescriptionEstimated Value ($)
Cash and Cash EquivalentsChecking Account$5,000
Savings Account$10,000
InvestmentsStocks$20,000
Bonds$15,000
Mutual Funds$25,000
Retirement Accounts401(k)$100,000
IRA$50,000
Roth IRA$30,000
Real EstatePrimary Residence$300,000
Rental Property$150,000
VehiclesCar #1$15,000
Car #2$10,000
Personal PropertyJewelry$5,000
Artwork$10,000
Electronics$3,000
Other AssetsBusiness Ownership$50,000
Collectibles$8,000
Total Assets:$796,000

The asset list is an overview of financial holdings across various categories. It helps you assess overall wealth.

Step 2: Calculate Your Liabilities

Next, list all your liabilities or debts. This may include:

  • Mortgage: The outstanding balance on your mortgage loan.
  • Consumer Debt: Credit card debt, personal loans, student loans, or other outstanding loans.
  • Other Financial Obligations: Any other financial obligations such as car loans or medical bills.

Total up the amounts owed on each liability to calculate your total liabilities.

Liability CategoryDescriptionOutstanding Balance ($)
MortgagePrimary Home$200,000
Auto LoanSpouse’s Loan$15,000
Student LoansFederal Student Loans$30,000
Credit Card DebtCredit Card Balances$5,000
Personal LoansDebt Consolidation$10,000
Home Equity Line of CreditHELOC (Home Equity Line of Credit)$25,000
Medical DebtUnpaid Medical Bills$3,000
Other DebtsAny Other Outstanding Debts$2,000
Total Liabilities:$290,000

The list provides an overview of outstanding liabilities and debts, helping you understand financial obligations. It’s useful when crafting a debt pay-off plan.

Step 3: Determine Your Net Worth

Once you have tallied your assets and liabilities, calculate your net worth by subtracting your total liabilities from your total assets. The resulting figure represents your net worth—the true measure of your financial health.

  • Net Worth = Total Assets – Total Liabilities

A positive net worth indicates that your assets exceed your liabilities, while a negative net worth signifies the opposite.

Your net worth provides valuable financial insight and is the most important wealth benchmark.

AssetsAmount ($)LiabilitiesAmount ($)
Cash and Cash Equivalents$10,000Mortgage$150,000
Savings Accounts$5,000Car Loan$20,000
Investments$50,000Student Loans$30,000
Retirement Accounts$100,000Credit Card Debt$5,000
Home Equity$200,000Personal Loans$10,000
Rental Property$150,000
Other Assets$20,000
Total Assets:$535,000Total Liabilities:$215,000
Net Worth:$320,000

The simplified net worth statement provides an overview of wealth by comparing assets to liabilities. It’s a valuable tool for assessing overall financial health and tracking progress over time.

Step 4: Analyze Your Income and Expenses

Evaluate your sources of income and the breakdown of your monthly expenses. This involves:

  • Income Analysis: Identify all sources of income, including salaries, wages, bonuses, rental income, investment income, and any other sources of revenue.
  • Expense Assessment: Track your monthly expenses across various categories such as housing, transportation, food, utilities, healthcare, entertainment, and discretionary spending.

Comparing your income against your expenses allows you to determine your cash flow—the difference between your income and expenses.

  • Cash Flow = Monthly Income – Monthly Expenses

A positive cash flow indicates living within your means, while a negative cash flow signals potential financial strain.

CategoryInflows (Income)Outflows (Expenses)Net Cash Flow
Employment$3,500 (Monthly Salary)$3,500
Side Business$500 (Monthly Revenue)$500
Rental Income$1,200 (Monthly Rent)$1,200
Total Income$5,200$5,200
Housing
Rent-$1,500
Utilities-$150
Transportation-$300
Food-$400
Entertainment-$200
Savings/Investments-$1,000
Debt Payments-$500
Total Expenses-$4,050
Net Cash Flow$5,200-$4,050$1,150

In this example:

  • Inflows (Income) include various sources such as employment, side business revenue, and rental income, totaling $5,200.
  • Outflows (Expenses) cover essential categories like housing, transportation, food, entertainment, savings/investments, and debt payments, totaling -$4,050.
  • Net Cash Flow is calculated by subtracting total expenses from total income, resulting in a positive net cash flow of $1,150.

This simplified cash flow statement provides an overview of cash inflows and outflows, helping track how money is spent.

Step 5: Review Outstanding Debts and Financial Obligations

Examine your outstanding debts and financial obligations in detail. This involves:

  • Debt Analysis: Review the terms of your outstanding debts, including interest rates, repayment schedules, and any associated fees or penalties.
  • Debt Prioritization: Identify high-interest debts that warrant immediate attention and prioritize debt repayment accordingly.
  • Evaluate Financial Obligations: Assess ongoing financial commitments such as insurance premiums, subscription services, or membership dues.

Understanding your debt and financial obligations enables you to develop a repayment plan.

CategoryDescriptionInterest Rate (%)Outstanding Balance ($)Repayment ScheduleAssociated Fees ($)
Credit Card DebtCredit card balances18.99$5,000Minimum monthly payments$50 late fee per missed payment
Student LoansEducational loans5.50$30,000Monthly installmentsNone
Car LoanAuto loan for vehicle purchase4.25$15,000Monthly installmentsNone
MortgageHome loan3.75$200,000Monthly installmentsNone
Personal LoansPersonal loan for home renovations8.00$10,000Monthly installmentsNone
Home InsuranceAnnual premium for home insuranceN/A$1,200AnnuallyNone
Health InsuranceMonthly premiums for health insuranceN/A$200MonthlyNone
Gym MembershipMonthly dues for gym membershipN/A$50MonthlyNone
Streaming ServicesMonthly subscriptions for streaming servicesN/A$30MonthlyNone
Total Obligations:
Total Debt:$260,250$50 late fee for each missed credit card payment

In this example:

  • Debt Analysis: Each outstanding debt is detailed, including the type of debt, interest rate, outstanding balance, repayment schedule, and associated fees. Read more on how to pay off debt.
  • Debt Prioritization: High-interest debts like credit card debt are prioritized for repayment. Learn about the debt snowball and debt avalanche methods.
  • Evaluate Financial Obligations: Ongoing financial commitments such as insurance premiums, subscription services, and membership dues are listed for assessment. Find ways to lower your bills.

Step 6: Check Your Credit Report and Score

Review your credit file to ensure accuracy and get your credit score to see where you fall within the range.

  • Credit report review: Make sure your report reflects your actual credit usage. Inaccurate information can happen and affect your credit health.
  • Credit score analysis: Scores make understanding how you manage credit easy. Higher credit scores signify that you can pay your obligations.

Knowing your credit standing can help determine if you can use leverage to build wealth or reduce the cost of existing debt.

CategoryDescription
Personal InformationObtain your credit score from each major credit bureau (Equifax, Experian, TransUnion) and compare them for consistency. Understand the factors influencing your credit score and take steps to improve it if necessary.
Account SummaryExamine your payment history for each account, including whether payments were made on time and whether there were any late payments, defaults, or delinquencies.
Payment HistoryEvaluate the types of accounts listed (e.g., credit cards, loans, mortgages) and ensure all accounts belong to you. Check for any accounts you don’t recognize or may be fraudulent.
Credit UtilizationAssess the average age of your credit accounts and the time since your oldest and newest accounts were opened. A longer credit history generally reflects positively on your credit score.
Length of Credit HistoryCheck for any recent credit inquiries which may occur when you apply for new credit accounts. Multiple inquiries within a short period can negatively impact your credit score.
New Credit InquiriesReview any public records, such as tax liens or judgments, that may be listed on your credit report. Ensure that these records are accurate and up to date.
Negative ItemsIdentify any negative items such as public records, bankruptcies, foreclosures, or collections accounts and understand how they impact your credit score. Consider taking steps to address and resolve these negative items. Learn how to dispute inaccuracies in your credit report.
Credit ScoreObtain your credit score from each major credit bureau (Equifax, Experian, TransUnion) and compare them for consistency. Understand the factors influencing your credit score and take steps to improve it if necessary. Find the best free credit score apps on phroogal.com.

Use this table to thoroughly review your credit report, identify any discrepancies or issues, and take appropriate actions to maintain or improve your credit score.

Regular credit report monitoring is essential for financial health. Find the best credit monitoring apps to help you.

Step 7: Review Your Retirement Savings

Ensure your retirement is on track. Determine whether your current investment portfolio is on track to achieve retirement.

AspectDescription
Retirement GoalsEvaluate your retirement accounts’ performance and asset allocation, such as 401(k) plans, IRAs (Traditional or Roth), or pension plans. Review the investment choices within these accounts to ensure they align with your retirement objectives, risk tolerance, and investment horizon.
Retirement AccountsEvaluate your retirement accounts’ performance and asset allocation, such as 401(k) plans, IRAs (Traditional or Roth), or pension plans.
Contribution LevelsReview your contribution levels to retirement accounts and consider whether you maximize contributions to take advantage of tax benefits and employer matches.

Step 9: Check Your Investments

Are you investing for independence? Aside from retirement accounts, consider investing in a general investing account.

AspectDescription
Financial ObjectivesIdentify your other goals, such as saving for a home purchase, funding education expenses, or retiring early. Evaluate whether your investment portfolio supports these objectives.
Performance AnalysisAssess whether your investments meet performance expectations. Make adjustments as necessary to optimize portfolio performance.
ContributionsDetermine if you can increase the amount you invest to accelerate reaching your goals.

Learn more about investing for independence.

Step 10: Analyze Your Insurance Needs

Analyzing your risk exposure and ensuring adequate insurance coverage to protect against unforeseen events is essential.

  • Assessing Insurance Needs: Consider your financial obligations, dependents, lifestyle, and potential risks you may face.
  • Review Existing Policies: Verify that your policies provide adequate coverage amounts, and consider adjusting coverage limits or deductibles to better suit your risk tolerance and financial situation.

The following table provides a structured approach to assessing insurance needs and reviewing existing insurance policies.

AspectQuestions to ConsiderAction Items
Life InsuranceWhat are your outstanding debts, such as mortgages, loans, or credit card balances? How much income would your family need to maintain their standard of living in the event of your death?Determine the appropriate amount and type of life insurance coverage to meet your family’s financial needs.
Health InsuranceWhat type of health insurance coverage do you currently have, and does it provide adequate protection for medical expenses?Assess whether your health insurance coverage meets your current and anticipated healthcare needs.
Property and Casualty InsuranceAre you adequately protected against potential risks such as fire, theft, vandalism, natural disasters, and liability claims? – Review your property and casualty insurance policies, including coverage limits and deductibles.
Disability InsuranceDo you have sufficient savings or other sources of income to support yourself and your family in the event of a disability that prevents you from working?Evaluate whether your disability coverage (often provided by employers) provides sufficient income replacement in the event of a disability.
Liability InsuranceWhat potential liabilities do you face, such as property damage, bodily injury, or legal claims?Assess whether liability coverage protects your assets and future earnings from legal claims.
Long-Term Care InsuranceDo you have sufficient savings or insurance coverage to cover the costs of long-term care services in later life?Assess your potential long-term care needs, considering age, health status, and family history.

Learn more about insurance planning.

Identify Areas for Improvement

Finally, identify areas of strength and improvement based on your financial checkup.

Ask yourself:

  • Are there opportunities to increase income or reduce expenses?
  • Can I reallocate resources to maximize savings or investment potential?
  • Are there any immediate financial goals or challenges that require attention?

By pinpointing areas for improvement, you can proactively address financial gaps and implement strategies to enhance your financial well-being.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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