Apr 15, 2019
Much like your physical health, you shouldn’t leave your financial health to chance. You have control - being proactive about your finances can spare you from falling victim to unexpected financial troubles.
Taking back control of your finances starts with taking a virtual snapshot of your current financial health.
Here are seven questions to ask yourself to get an idea of how healthy your bank account is.
1. Do you know your net worth?
Your net worth is comparable to your baseline blood pressure. It may be different for different people in different situations, but the most important thing is to know what’s “normal” for you.
Once you know your financial baseline, you’ll know where to start working from to make improvements. Find out your net worth by adding up your assets (like property, cash and investments) and subtract from them your liabilities (debts and loans).
Even if your net worth is in the negative, that’s ok. At least you know where to start! A good goal would be to try building your net worth every year by 5 to 10 percent.
2. Is your “debt weight” under control?
Your body mass index, or BMI, is an important gauge for your physical health. It can indicate whether or not you have excess weight that can negatively impact your ability to stay healthy.
Debt is the same. It can represent unwanted excess baggage that only puts a drain on your financial resources. It’s not easy to avoid all kinds of debt, but you should work to ensure that your debt doesn’t creep up to the point that it’s more than 30% the amount of what you earn.
You can best reduce your “debt weight,” not by just earning more to lower the ratio, but by making debt repayments a priority.
3. Do you live on a budget?
Everyone should have a budget. There is no better way to control your finances than by knowing where every last dollar is going. And that’s exactly what budgeting is: tracking your money. It’s not about limiting yourself to a stringent lifestyle of the boring bare minimum, it’s about maintaining control over your finances.
Sticking to a budget does for your finances what an exercise or training program does for your body, it keeps you strong, flexible and healthy.
Set a goal for your spending each month, allocating funds for everything including savings deposits and debt repayments. This kind of structure and discipline will give you more control over your finances and keep them healthy, flexible and at a lower risk of “health” problems when financial emergencies and market downturns strike.
4. Are you confident in your knowledge of investing and other wealth-building techniques?
Cultivate the financially healthy habit of self-education when it comes to building your wealth and maximising your earnings.
Don’t just stick to the tried-and-true maxims on investing. Stay current with the trends and get fresh insights from successful investors of all backgrounds. Become financially-savvy by researching and reading from credible sources.
Growing your knowledge is healthy since it empowers you to make smart decisions with your wealth. Of course, it is even more powerful when your new found knowledge works in conjunction with that of an expert financial adviser.
5. Do you have emergency fund?
Many a life has been saved because someone knew to call 000 in an emergency.
You should likewise always know what to do when a financial emergency strikes. Having the fallback of an emergency fund will help you avoid panicking if you get injured, lose your job or another unexpected disaster strikes.
Aim to set aside enough money in your emergency fund to see your family through about six months of zero income.
6. Is your Will up to date?
A Will is a crucial document that will give your family peace of mind and ensure your wishes are met, in the event that the worst should befall you. Similarly, other documents such as one that designates a “power of attorney” for someone to make healthcare decisions for you should also be kept current.
7. Do you have financial goals? Are they down in writing?
You won’t be able to make the right decisions for your financial health if you don’t know what you want out of life. Don’t leave your finances to chance.
Just as goals to improve your diet, exercise, hygiene and lifestyle choices can improve your physical health, financial goals will improve your wealth. It starts by identifying which areas you’d like to change and then creating a plan and sticking to it.
Your financial goals should realistically reflect your values and priorities and align with them so put a lot of careful thought into choosing goals such as eliminating debt, saving more cash for your growing family, investing for retirement or starting a business.
Book your financial health checkup!
So how did you do?
If you didn’t have a clear affirmative answer for one or more of the questions listed above, then your financial health could probably use a boost.
So get in touch with us, we'd love to help get you back in shape.
Written by Ben Calder, Private Client Adviser at Calder Wealth Management.
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