How To Conduct a Financial Checkup

Life can move at a fast pace, and change is the only constant. Changes in your age, health, income, savings, and more, can affect your priorities and impact the way you grow and manage your finances. This is why it helps to revisit your financial plans every now and then. A financial checkup can help you do this. 

A financial checkup is similar to a medical checkup. Just as you go to your doctor every year and get a thorough evaluation of your health, a financial checkup gives you a comprehensive assessment of your financial situation. When you get diagnosed with a health concern or some of your parameters are not right, you know you have to modify your lifestyle and accordingly tackle the problem. Similarly, a financial checkup helps you find issues in your financial plan and target them to see an improvement. Further, it also enables you to understand whether or not you are doing things right and take the correct course of action for the future. A financial health checkup includes a general evaluation of all the different aspects of financial planning to ensure you do not end up ignoring anything. You can do an investment checkup for your investments or a savings checkup for your savings. If you wish to learn more about financial checkups or how to carry one out, reach out to a professional financial advisor who can advise you on the same.

If you are new to financial checkups and not sure where to begin, this guide can help you: 

1. Take note of any changes in your personal life that affect you financially: 

The first step in a financial checkup is making a list of all the changes that may have taken place in your personal life since you first created a financial plan. This can include marriage, divorce, having biological children, losing a spouse or a child, adopting a child, remarriage, and other similar events. Your financial plan is primarily based on your personal life and relationships. The financial plan of a single individual will differ from a married individual. Further, the financial plan of a parent will vary from someone who does not have children. This is primarily because of the additional needs of your dependents.

A study by the Society of Actuaries (SOA) in 2019 showed that “married and partnered individuals exhibit greater income and wealth, more security and a more positive outlook across all generations.” If you have been recently married, your financial plan must reflect it as your needs are bound to change. If your spouse is financially dependent on you, you would have to account for their expenses and future goals. However, if your spouse is financially independent, you may have a financial cushion if you happen to lose your job or are not able to save as much. Additionally, if your spouse is earning more than you, you would be at an advantage, as the two of you can reach your goals sooner with joint financial planning. If you have children, you would have to account for their expenses, including healthcare, education, higher education, marriage, and the possibility of financial support even after they are adults. This can require an additional set of investments and savings along with some compromised lifestyle (in some cases) to accommodate the child’s needs. If your spouse or child is differently-abled, you may have to account for their long-term care and relatively higher health expenses. A good health insurance plan would be vital here. Life insurance is also equally critical for you if you have financial dependents.

2. Take note of any changes in your professional life:

Just like your personal life, any changes in your professional life are also essential considerations in a financial health checkup. In this step, you can take a look at factors like a change in your salary – higher and lower, change in benefits like meal allowances, travel allowances, company-sponsored plans like the 401(k) retirement account, SEP Individual Retirement Account (IRA), 403(b) plan, 457 plan, SIMPLE IRA, etc. If you changed jobs, make a list of everything included in your job offer over and above the salary to make sense of your current financial situation. For instance, it is possible to get a higher paying job. However, if your new employer does not match your 401(k) contribution as your previous employer, you stand to lose somewhere. There can be several permutations and combinations that can affect your financial plan differently. A better paying job but a higher expense in the face of commuting can be another example. The city you work in also affects your budget. Relocating to a bigger city even for a better salary can result in higher expenditure because of the high standard of living.

Nevertheless, if you earn more than you did before, you must ensure to save more and invest the money you save. A higher salary is an excellent sign to increase your retirement account contributions. Irrespective of whether your employer matches your contribution, you still benefit in the long run with a higher contribution from your end. If you have loans, you can pay them off prematurely. A financial checkup can help you identify the areas that can be worked upon. 

Likewise, if you lose your job or get a salary cut, you may have to cut down on some things. This, too, can impact your savings and investments. Although it may not be advised to reduce your investments, you may be forced to do so. In such a case, an investment checkup can help you recognize and prioritize the investments you can reduce and the ones that you must not. You can also take help from a financial advisor in this regard.  

3. Evaluate your financial goals:

Your goals will differ at each age and stage in life. Therefore, going over them in a financial checkup can be critical. Your goals are the foundation of your financial plan. Every savings and investment account that you may have is modeled around a goal. For instance, if your goal is retirement, your portfolio can include a 401(k), IRA, Health Savings Account (HSA), Medicare, stocks, etc. According to the U.S. Census Bureau, 41% of employed people contribute to a 401(k), even though 68% have access to it. If your goal is retirement, you can benefit a lot by being in the former group of people. A 401(k) allows you to contribute up to $20,500 in 2022 per year. If you are over the age of 50, you can contribute an additional $6,500. However, if your goal is to sponsor a child’s education, you may use an IRA, 529 education savings account, Coverdell Education Savings Account (ESA), Custodial accounts like Uniform Gift to Minors Act (UGMAs) and Uniform Transfers to Minors Act (UTMAs),  etc. 

The goal will determine your investment. This is why it is essential to evaluate and understand your goals at present by conducting a thorough financial checkup of your portfolio. See how well your present investments align with your current goals when you do so. If you see gaps, you can take this opportunity to make modifications. Redeem money from where it no longer serves your purpose and invest in options that can serve it better. However, be mindful of the tax implications of your actions. A financial advisor’s help can be beneficial here. 

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4. Make a list of your assets and liabilities:

You may own some assets and have some liabilities at the same time. Assets refer to financial tools that help you earn money. These can include a home, an appreciating investment, collectibles, etc. Liabilities are rust on your savings and can include debts like loans, credit card dues, mortgages, etc. The older you are, the more assets you can have. Your liabilities have little to do with age and can mount up anytime, depending on how you handle your money. Typically, your assets should supersede your liabilities. Such a situation in a financial checkup reflects a solid financial standing. If the value of your assets is more than your liabilities, you can relax and be stress-free, knowing you are on the right track. However, if the value of your liabilities is more than your assets, you may need to take some immediate measures to turn things in your favor. You can start with prioritizing your debt settlements, reducing your expenses, and avoiding any more debt, including credit cards. Budgeting can be essential in such a scenario as it can help you track all your expenses and curb spending on unnecessary items. Checking your credit score is also critical when assessing your debt situation. If your credit score is too low, try to get it back up.

On the other hand, if your assets are valued more than your liabilities, you must take all necessary precautions to safeguard them. Insurance is a must for all your assets. You can consider getting homeowners insurance, home insurance, auto insurance, insurance for your jewelry and collectibles, etc. It is also important to treat your health as an asset and get adequate health and life insurance. 

5. Evaluate your investments to check where you stand: 

An investment checkup can help you devise the best-suited investment strategy for your financial goals. It is also essential to keep track of how your investments have performed. Investments help your money grow. They secure your future and help you beat inflation. However, this can only happen if your investments fare the way you expect them to. If you find some of your investments are not performing as expected, you may want to alter your investment strategy. However, it is vital to do a complete financial checkup and look at how the market is performing before you do so.

Additionally, check how other investments have performed in the same time frame. For instance, if your mutual fund is not generating good returns before you redeem your money, look at other similar mutual fund schemes and see their returns. Compare different mutual fund schemes during the same period, check their portfolios and market capitalization, and then make a call. You can do the same checkup for your investments in a 401(k) and IRA and accordingly modify your portfolio.

You may also need a financial health check to rebalance your investment portfolio if you are nearing retirement. Your risk appetite may fall during this time, and you may have to make some changes to your investments. Further, another thing to focus on is using your losses to your advantage. If you have suffered from a loss, consult with a tax planner and see if you can use tax-loss harvesting and save tax. This way, you can turn your losses into savings. 

6. Go through your estate plan:

This is linked to your personal life and its changes. Your estate plan includes your will and other tools like trusts, powers of attorney, health directives, guardianship, etc. Making an estate plan soon in life is suitable for ensuring your loved ones’ financial security. If there has been any change in your personal situation, like a divorce or remarriage, the same should be immediately reflected in your estate plan to avoid any chance of error or lapse later. Ensure that your nominations on retirement accounts, bank accounts, insurance policies, etc., are the same as those in your will to avoid confusion. Also, include every possible detail in your will about the inheritance of your assets. If you have been married more than once and have children from more than one relationship, being clear about who gets what can avoid the possibility of feuds between your children. It also eliminates the need for probate, which can be a costly legal affair for your family. Trusts and guardianships can also be critical in the case of minor children as it protects their interests as well as your estate from predators, creditors, and in some cases, the child itself. The rules of the trust can be bent to ensure proper usage. You can foresee all of these things in your financial checkup. 

To summarize

A financial health check can be useful in understanding where you stand and where you need to head to make things better. It is a simple way to set proper financial habits and use suitable investment strategies to move towards a financially secure future. It is also extremely straightforward and basically just requires you to go through your financial plan to make sure everything is in order. You can do a financial checkup once a year or whenever there has been any major life-changing event, such as an addition to your family, losing a loved one, getting a new job, inheriting money, etc. 

If you are unsure how to conduct a financial checkup and wish to seek professional assistance on the matter, you can consider hiring a professional financial advisor. Use the free advisor match service and get matched with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.

For additional information on retirement planning strategies that can be tailored to your specific financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.