If you’re digging into your financial health, the first step is a checkup.
Before we get into it, congratulations for taking the big and brave step of getting control of your money. It’s something most people are scared to do, so take as many deep breaths as you need to.
As Nelson Mandela said, “It always seems impossible until it’s done.”
You’re about to feel so much better.
So…just what IS a financial checkup?
A financial checkup – also known as the more ominous-sounding “financial audit” – is the process of taking a thorough look at how much money you have, where it goes, and where it should be going but isn’t, and figuring out how to set aside funds for both short- and long-term savings.
Basically, it’s how to evaluate the current state of your money so you can get on track to financial health and stay that way.
If you’re married or have a partner, it’s a good idea to work together on a joint financial checkup.
What you’ll get
At the top level, a financial checkup will help you:
- Determine your net worth (job and investment income, retirement accounts, vehicles and other property – in short, your assets, liquid or otherwise) and everything you spend money on (living expenses, debts, insurance payments).
- Identify and evaluate your money habits, both good and bad (Do you think carefully about every purchase or shop impulsively? Do you take big financial risks?).
- Find ways to spend less and save more, which might sound like the whole point but remember that you do get to spend. This isn’t only about saving. It’s about understanding your financial health overall.
What you’ll look at
As you assess your financial health, you’ll think about these key questions:
- Do you have an emergency fund? (Problems can always crop up, so it’s good to have a minimum of three months’ worth of expenses squirreled away. Six to eight months is better.)
- Are you in the black, or do you carry debt, such as car payments, student loans, medical bills, and credit cards? (Any high-interest debt should be paid off ASAP.) Does anyone owe you money?
- Are your everyday needs being met? Are there things you must spend money on soon (car repair), or things you want (your own home), but don’t actually need (a huge QLED TV)?
- Are you fully insured? (Including auto insurance, health/disability insurance, and life insurance, particularly if you have dependents.)
- Are you actively saving for your short- and long-term future plans? (This can include taking a dream vacation, buying a home, or putting money away for retirement.)
A financial checkup can expose weaknesses in your current status and help you prioritize going forward.
Remember, the first time is bound to be the most difficult. Once you get the hang of it, it will be easier to complete regular financial checkups to track how your financial health has improved, putting you closer to achieving your goals.
Read next: How to Prep for a Financial Checkup
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