How To Check Your Financial Health

Maintaining good financial health is essential for achieving your life goals and ensuring long-term stability. Just like physical health check-ups, it’s crucial to regularly assess your financial well-being. In this article, we’ll walk you through a step-by-step process to assess your financial health.

Step 1: Gather Financial Information

Start by gathering all your financial documents, including bank statements, credit card statements, investment portfolios, loan documents, and any other relevant paperwork. Having a clear picture of your financial landscape will help you make accurate assessments.

Step 2: Calculate Your Net Worth

Your net worth is a fundamental indicator of your financial health. To calculate it, subtract your total liabilities (debts) from your total assets (property, investments, savings, etc.). A positive net worth signifies that you have more assets than debts.

Net Worth = Total Assets – Total Liabilities

Step 3: Evaluate Cash Flow

Assessing your cash flow helps you understand your income and expenses. Create a budget to track your monthly inflows and outflows. Categorise your expenses into essential (e.g., housing, groceries) and discretionary (e.g., entertainment, dining out) to identify potential areas for savings.

Step 4: Debt Analysis

Analyse your outstanding debts, including credit card debt, student loans, mortgages, and other loans. Calculate your debt-to-income ratio by dividing your total monthly debt payments by your monthly gross income. A lower ratio indicates healthier debt management.

Debt-to-Income Ratio = Total Monthly Debt Payments / Monthly Gross Income

Step 5: Emergency Fund Assessment

Having an emergency fund is crucial for financial stability. Aim to have three to six months’ worth of living expenses saved in an easily accessible, low-risk account like a money market fund. If you haven’t reached this goal, prioritise building your emergency fund.

Step 6: Retirement Readiness

Evaluate your retirement savings and investment accounts. Are you contributing regularly to retirement plans? Do you know how much you will need to retire comfortably? It can be a challenge to determine a dollar amount to aim for. Our team has decades of experience helping our clients plan for retirement and can help guide you in the right direction or you can seek out the assistance of a financial planner.  

Step 7: Insurance Coverage

Review your insurance policies, including health, life, home and auto insurance. Ensure you have adequate coverage to protect against unexpected events that could have a significant financial impact. A financial planner may be able to assist with this.

Step 8: Investment Portfolio Analysis

Examine your investment portfolio’s diversification and risk level. If you don’t know if your investment portfolio is aligned with your financial objectives and goals, seek professional advice from an investment advisor. LOM’s consultations are free of cost, with no obligations or expectations. A well-diversified portfolio can help manage risk and potentially improve returns. Consider your risk tolerance and adjust your investments accordingly.

Step 9: Future Goals and Planning

Assess your progress toward achieving your financial goals, such as buying a home, funding education, or starting a business. Set specific, measurable, achievable, relevant, and time-bound (SMART) goals and create a plan to reach them.

Step 10: Seek Professional

If you’re unsure about any aspect of your financial health, consider consulting an investment advisor. They can provide expert guidance tailored to your individual circumstances and help you make informed decisions.

By following the steps outlined in this article, you can gain valuable insights into your financial situation, identify areas for improvement, and take action to secure a stable and prosperous future. Regularly evaluating your financial health is a proactive approach to ensure your financial well-being.

The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.