How to Give Yourself a Financial Health Check in 5 Simple Steps
Welcome to POPSUGAR Powerhouse, a content series that aims to hand you the keys to financial freedom and take control of your money in 2022. Our goal is to fill you with the confidence and know-how to make your money dreams come true.
We’ll give you expert advice and information curated, covering topics including a first home buyer’s guide to property, getting started with investing, debt recycling, and much more. You can find all of the POPSUGAR Powerhouse stories here.
However, a topic that we traditionally weren’t taught much about, is money. And with it, the importance of giving yourself a financial health check every once in a while – especially when you are about to make a major financial decision like buying a home or investing.
What Is a Financial Health Check?
A financial health check is simply about taking a bird’s eye view of your finances, to see how everything is going. It can help you to notice if there is an area that needs some extra attention, and support you with making major life decisions. While there are no hard and fast rules about how to check your financial progress, this guide will give you a good starting point.
As you go through the steps outlined below, keep in mind that a financial health check is not about passing judgement on the state of your finances. It is merely a helpful tool that you can use to guide your future financial decisions and make sure that the important things are taken care of.
Step 1: Check Your Cash Flow
Regardless of what financial or lifestyle goals you have, you will struggle to achieve them without a healthy cash flow. To check how things are going you can put together a detailed budget to see whether your expenses outstrip your income. Or, if you are short on time and not a fan of crunching numbers, you can simply take a look at your bank balance and credit card statement. Is your credit card rarely used or consistently paid off in full? If not, it is likely that your cash flow is in the red. What about your bank account the day before payday? Is there a healthy balance remaining or is it approaching zero?
Negative or zero net cash flow each pay – 0 points
Less than $500 surplus cash each month – 1 point
More than $500 surplus cash each month – 2 points
Step 2: Check Your Savings
Next, take a look at how your emergency savings are tracking. When it comes to how much you need to set aside in your emergency savings fund, three months’ worth of living expenses is a good goal to aim for.
Ultimately, how much you need will depend on your personal circumstances. For example, you may need to save more if you work in a role where it could take time to find a replacement job, or if you don’t have any income protection insurance.
No savings – 0 points
Less than one month of living expenses saved – 1 point
More than one month of living expenses saved – 2 points
Step 3: Check Your Personal Insurances
Speaking of insurance, there is one asset most of us tend to forget to insure and that is – ourselves. When you stop to think about it, your ability to earn an income is your greatest asset, and one that is definitely worth protecting.
This is why a range of life insurance policies exist to help you stay financially afloat if you are diagnosed with a serious medical condition and are unable to work – temporarily or permanently.
These policies are Life, Total and Permanent Disability, Trauma and Income Protection Insurance. As a starting point, contact your employer and super fund to find out what cover you already have in place, and see your financial adviser to check whether the level of cover you have is sufficient to meet your needs.
I don’t have any form of life insurance – 0 points
I have some insurance in super, but not sure what – 1 point
I have adequate life, TPD, trauma and income protection – 2 points
Step 4: Check Your Super
Now that you have had a look at your immediate cash flow and savings needs, it is time to set our sights on the future. How healthy your super balance is likely to be by the time you retire will be affected not just by how it is invested and the fees you are paying, but also by whether or not you are working and making additional contributions.
Not earning any super – 0 points
I receive super through employment (SGC) OR I make voluntary contributions – 1 point
I receive SGC AND I make voluntary contributions – 2 points
Step 5: Check Your Important Documents
Last but not least, it is time to make sure that all our important documents are up to date. Having a valid will in place can make a stressful situation that little bit easier for your family to handle, should something happen to you.
Be careful of doing it yourself without legal advice, as will kits and DYI wills can often be ambiguous, incorrectly completed or witnessed, and can make it possible for someone to challenge the will.
It also helps to put in place an Enduring Power of Attorney and Enduring Power of Guardianship (also known as Medical Power of Attorney). These documents will enable someone you trust to make financial and medical decisions on your behalf in case you are unable to do so yourself (for example, due to being in a coma).
Don’t have a will or power of attorney in place – 0 points
Have a will but no POA or will isn’t current – 1 point
Have a will and POA and review it regularly – 2 points
Step 6 (Optional): Check Your Mortgage
If you are a homeowner, remember to include the state of your mortgage in your financial health check. Your home is likely to be not just your biggest asset, but also your largest debt. How effectively you manage it, can make a significant difference to your financial wellbeing. Consider, are you paying more than the minimum repayments? When is the last time you checked your interest rate? Are you on track to be debt-free by the time you retire?
I make interest-only repayments on my mortgage – 0 points
I make the minimum principal and interest repayments – 1 point
I pay more than the minimum required, and regularly review my interest rate – 2 points
Now that you have reviewed each area of your finances, it is time to tally up your points and see what action you need to take. If you are a home-owner, adjust the below range by an extra two points (0-6; 7-11; 12)
0-4 Points – Get back to basics
Start by taking a closer look at your income and expenses and brainstorm ways to boost your surplus cash each month. Next, direct your spare cash towards boosting your savings, paying down personal debt and getting the essentials sorted like your will and insurances.
5-9 Points – Room for improvement
You are plodding along OK, but there is room for improvement. Take a look at your backup plan and make sure you have sufficient emergency savings. Then, set some time to review and update the important paperwork like your will, insurances and superannuation.
10 points – Ready to level up!
Great work! You have all the essentials taken care of. Schedule an annual reminder to review your important documents and make sure they remain up to date. Now that the essentials are taken care of, it’s time to level up! If you don’t have any specific goals, you can begin by writing out your most important values and rating your satisfaction with how you are going. Then list 3 goals that are aligned with those values and attach a dollar figure to them. Once you have that number, list the goals in order of priority and break the dollar figure down into a weekly amount that you can transfer each pay.
Natasha Janssens is a Certified Money Coach (CMC)® and founder of Women with Cents. She is an award winning financial educator with a passion for supporting women to transform their relationship with money. If you don’t know what you don’t know when it comes to money and financial matters, her book Wonder Woman’s Guide to Money is for you. For more of Natasha’s tips follow her on Instagram and take the Money Type Quiz.