How to do a financial health check

How to do a Financial Health Check-up in 6 Easy Steps

When was the last time you had a financial health check? When it comes to our physical health, we all understand the importance of regular check-ups. When you catch issues early, they are much easier to address. When you neglect problems, they can develop into serious issues.  The same goes for your financial health. 

Performing a financial health check can help you understand the current state of your finances, if you are on track to meet your goals and if there are any issues that need extra attention and TLC.

Luckily, it’s easy to do a financial check-up on your own. 

How to Use This Guide

In this guide, we cover 6 key areas of financial health that everyone should review on a regular basis. We’ll give you a score to assess yourself in each section and then an overall Financial Health Score at the end. 

Take your time in each area and write down your answers. Having all of your financial information written down so you can see it all in one place gives you a clear picture of what you are working with. This is the crucial first step to reaching your financial goals – however YOU define them.

Step 1: Financial Goal Setting

In the words of “the first lady of software,” Grace Brewster – “One accurate measurement is worth a thousand expert opinions.” If you want to measure your progress and make sure you are on track, it’s important to know what you are measuring against. And that means you need a clear goal. If you can quantify it with an amount and a deadline, even better. 

To guide your goal setting, it’s helpful to use SMART goals. SMART is an acronym for Specific, Measurable, Achievable, Realistic, and Timely. Defining your goals with these criteria will help you zero in on exactly what you are working towards, focus your efforts, and increase your shot at reaching the end goal.

The following prompts will provide a framework to list measurable goals. You may already have a clear understanding of what you are trying to achieve. In that case, use this time to revisit your goals and see if you can get clearer on the SMART details. Alternately, you can use this time to visualize achieving the goals and revisit the importance of why you are working towards them. 

If, on the other hand, this is new to you, take the time to think through each prompt and remember that no goal is too big or small. The most important thing is that they are YOUR goals, not ideas that you feel like you “should” have. 

If you have a partner, this is a great exercise to get them involved with as well.

Short Term Financial Goal Setting: Less than 3 Years

Do you have any big purchases planned for the next 3 years? Some examples would be a new car, a big holiday or home renovations. What is the total value of these purchases?

Example: Finish paying off my car of $4,000 by the end of this year

Goal 1:

Goal 2:

Goal 3:

Keep in mind that for objectives under 3 years, you can’t afford to take much (or any) risk with investments, so your saving rate is really important.

Medium Term Financial Goal Setting: 3 to 10 years

Looking forward to the next 3-10 years, is there anything major in your life that you would like to look different than it does now? Some examples might include a change of career, going back to school or “up-skilling,” paying for your kids’ college, buying a bigger house, spending time overseas or having (more) children.

Would this involve a one-off cost? If yes, how much?

Would this involve a reduction (or lead to an increase) in income? If yes, how much and for how many years?

Example: Open a 529 and save $10,000 towards my child’s college education in the next 5 years.

Goal 1:

Goal 2:

Goal 3:

For these objectives, using investments to help you achieve them may be something to consider. For timescales over 5 years, investments should be a priority. We’ll cover investing later on.

Long Term Financial Goal Setting: 10+ years

Looking further down the road, how do you see your life? Where do you live? Are you traveling more? Close your eyes and imagine your retirement.

When do you want to retire? 

What would you like to do in retirement that you don’t do now?

Would your current level of income cover this lifestyle? If not, how much more do you need?

Example: I want to FIRE by age 40 with $1,125,000 in investments

Goal 1:

Goal 2:

Goal 3:

You should be thinking about retirement, even if you’re young. The earlier you start investing and make your money work for you, the more comfortable your retirement will be. It really is that simple.

Why is each goal important to you? How can you keep focused on this motivation to help keep you focused on your goals?

Your Score on Finanical Goal Setting

You should have SMART goals and objectives that fit into all 3 of these categories; short-term, medium-term, and long-term. Give yourself points for each category.

Number of CategoriesScore
0 SMART Goals0 Points
1 SMART Goal (e.g., 1 long-term goal)1 Point
2 SMART Goals (e.g., 1 short and 1 medium-term)2 Points
3 SMART Goals (1 short, 1 medium, 1 long-term)3 Points

Having specific goals is the first (and necessary) step to achieving financial objectives. Once you have them, you can easily track how you are progressing towards them. As you complete regular financial health checks, you can always modify goals and what you need to do to reach them.

Step 2. Understand Where Your Money is Going

No matter how much money you make a simple fact is that to become wealthier, you need to spend less than you earn.

This can mean a budget, but it doesn’t have to be a restrictive one that stops you from living your life. Quite the opposite, a budget should provide a basic understanding of where you spend your money, how that meets your objectives, and whether there is a surplus that can be used for saving and investing (the good part, where your money works for you).

The first step here is determining your income and your expenses. Itemizing all of your expenses will help you understand exactly where your money is going, what areas may need attention, and finally, where you need to prioritize in order to meet those awesome goals you wrote down in section one.

Below is a simple budget worksheet for you to list all of your expenses. Be honest with this and ensure you include things that you LIKE to spend money on, not just things you HAVE to spend money on. Budgets don’t have to be restrictive. In fact, they can give you a sense of freedom and control because you’ll know just where your money is going and when you spend it, you had it planned.

Income After TaxMonthly
Net Salary$
Net Investment Income$
Other$
Total Net Income$


ExpensesMonthly
Household
Mortgage/Rent$
Property Tax$
Utilities$
Cell Phone$
Internet$
Water$
Gas$
Car$
Car Service$
Childcare$
Groceries/Food$
Leisure
Clothing$
Gym$
Vacation$
Entertainment$
Social/Personal$
Kids Activity$
Birthdays$
Insurance
Car Insurance$
House Insurance$
Pet Insurance$
Life Insurance$
Other
School/College Fees$
Maintenance$
Any other monthly expenses


Total Expenditure$
Total Net Income – Total Expenditure = Surplus/Shortage$

Your Score on Income & Expenses

Cashflow PositionScore
Shortfall0 Points
Surplus <10%1 Point
Surplus 10% – 25%2 Points
Surplus >2 5%3 Points

Ensuring that your expenses are covered by your income is critical. The next step is to have a budget that generates a surplus. This surplus is your biggest opportunity to save and also to create wealth through investing.

Generating that surplus is key, and, even more important, is what you do with it. We’ll get into that in the next few sections.

Bur first, let’s complete your check-up.

Step 3: Review and Manage Your Debt 

Debt can be a hugely powerful tool or a crippling weight. The debt against non-investment assets can place a huge amount of strain on your personal finances, and it is often a difficult situation to unwind.

Carrying high-interest debt like credit cards or personal loans can be one of the most damaging things for your financial health because the true cost of this debt is so much higher than the amount borrowed. Let’s look at an example.

According to Federal Reserve data, the average credit card interest rate in 2021 is 15.91%. Most credit cards require a minimum repayment each month of between 1-3% or $20-$25, whichever is higher. In this example, we’ll assume the minimum repayment on this card is the greater 2% and $20.

If you carried a credit card debt of $15,000 at 15.91% and paid only the minimum each month, it would take you just over 35 years to clear and would have cost you $22,596 in interest. Not only will you have taken most of your working life to clear the debt, but you would also have paid a total of $37,596 for a $15,000 loan!

That is not good money sense and can have a massive impact on the likelihood of your achieving your financial goals.

Debt can be one of those things that we don’t realize how much we have until it is all tallied up. For this exercise, write a list of all of your debts, the current repayment amounts, and the current interest rates and tally these up.

DebtAmount OwingMonthly Payment

$$

$$

$$

$$

$$

$$

$$
Total$$
Total Monthly Payment/Budget Surplus = Debt Ratio (%)

A common “rule” for household debt is the 28/36 rule. This states that a maximum of 28% of your net income should go towards housing, and this plus any other debts should require a maximum of 36% of your net income each month.

Note – for those of you living in high-cost areas with astronomical real estate prices (like we do in San Diego CA), you know this is a challenging ratio to meet. BUT, it gives you a reference to work with so go ahead and complete the exercise anyway.

Your Score on Debt Management

Total Debt RatioScore
>36%0 Points
28% to 36%1 Point
18% to 28%2 Points
<18%3 Points

There are a number of different ways to approach paying off debt. Keep an emergency fund but consider using some of your cash to reduce your debts. Here are two debt reduction methods to consider.

Debt Avalanche method: List all your debts from highest interest rate to lowest. Use the extra cash to pay down the highest interest debt first. Make only the minimum monthly payment on the other debts. As you pay off each debt, move to the next highest interest rate debt. Continue until they are all paid off.

Debt Snowball method: List all your debts from smallest to largest debt amount (not including mortgages). Then use extra money each month to pay off the smallest debt first. Make only the minimum monthly payments on other debts. Once you pay off one debt, move your focus to paying off the next smallest debt amount.

Step 4: Build Up Your Savings Funds

Life happens. Unexpected events happen. Having an emergency fund in place helps create a buffer around your financial goals so you don’t have to go off course when you experience an unforeseen financial challenge. If your car needs a big repair, your income changes, your pet needs emergency care, you can count on money you’ve already put away for that emergency. This helps you avoid debt and borrowing money.

If you don’t have an emergency fund in place, set a goal to save $1000. From there, make a plan to save 3 – 6 months of living expenses. You can refer to the budget you completed earlier to determine the right number.

Some people prefer to set aside different savings funds to cover expected expenses – a vacation, a new car, an appliance. It can be anything. Once your emergency fund is in place, you can start setting aside money for another fund. Having a plan is always helpful in meeting the goal.

Your Score on Building Up Savings Funds

Emergency FundScore
No emergency fund yet0 Points
$1000 emergency fund in progress1 Point
3- 6 months living expenses in progress2 Points
Emergency fund saved3 Points

Step 5: Your Investment Strategy

This is the step that really allows you to reach your objectives and live your life the way you want. 

Everything else in this guide is a stepping stone to get to this place. Setting goals, understanding where your money is going, minimizing debt, getting a savings fund in place, and creating a surplus of cash are all the things you need to do to get to a place where you can start investing.

If you want to build a life that provides more freedom and more opportunity to you and your loved ones, investing truly is one of the most reliable ways to do it.

The main driver of both investment performance and volatility is asset allocation. When reviewing your own investment portfolio, this is the number 1 thing you need to manage to ensure your portfolio is optimized for your long-term objectives.

A good starting point for investing is contributing to your employer’s retirement plan and/or setting up an IRA on your own. If your employer offers a matching program, challenge yourself to max it out – that means more money contributed by your employer so be sure to take advantage of that perk. 

Investing outside of your retirement plans is another valuable way to make your money grow. A few years ago, investors looking for growth assets were limited to stocks, but that’s not true anymore! These days there are a huge number of new and niche investment asset classes that have the potential for very attractive returns.

Assets like cryptocurrency and NFT’s are creating a buzz at the moment and generating big returns for many investors (though with a very big side helping of risk and volatility), and there has also been an explosion of fractional investments such as Fundrise which makes investment in traditional assets like property, much, much easier. 

Diversification is key to investing, and there are ever-increasing ways to do this. When you are ready for this step, simply check out the Discover tab in your Money Minx account to learn more about valuable ways to invest.

For this section, we need to assess how well diversified your portfolio is currently, or whether you should consider adding some alternative asset classes.

Your Score on Investing

Number of Investment Asset Classes HeldScore
2 assets or less0 Points
3 assets1 Point
4 assets2 Points
5 assets or more3 Points

Of all the areas of your finances, your investment asset allocation and your investment performance are the most important to track and monitor closely and consistently. You could have all the correct financial behaviors in place and follow a financial plan to the letter, but if your investments aren’t doing what they are supposed to do, it could leave you well short of your objectives. You can easily track your investments and their progress against your goals, no matter how diverse, with your Money Minx account. This makes it simple to see your entire portfolio in one place.

Step 6: Protection and Insurance

Having the best financial plan in the world and millions of dollars in investments is pointless without our health. With that in mind, it is so important to make sure you have insurance in place to protect against the worst. Having the right type and amount of health and life insurance ensures that you can get the care and support you need, without worrying about how you’re going to pay for it.

Insurance coverage, such as life insurance, should be in place to ensure your family is financially secure if you pass away. It’s important to be sensible with the amount of coverage you consider. Insurance is there to provide a safety net, and not be a lottery win. The more coverage you take, the higher the premium, so ensure you have a sufficient level that also fits into your budget.

If you were to be unable to work for the long term due to ill health, do you have sufficient insurance cover in place to pay off the debts outlined in section 3?

Do you have sufficient passive income to meet your current living expenses?

If not, do you have sufficient insurance cover in place to bridge this gap?

Now there are so many different types of insurance cover, but it all boils down to one key point. If your income stopped temporarily, or permanently, would the lifestyle you and your loved ones have be sustainable or have to change drastically?

Your Score on Protection and Insurance

If your income stopped tomorrow would your lifestyle…Score
Change drastically right away (no coverage)0 Points
Change quickly (bare minimum coverage)1 Point
Unchanged in the short term, but would have to change if it was long term (some coverage)2 Points
Unchanged both short and long term (sufficient coverage to maintain current lifestyle)3 Points

Bonus Step: Check your Credit Report

Having a good credit score is part of being financially successful. Your creditworthiness is used to determine your eligibility for loans, renting a home, and also helps you get lower interest rates (which lets you save more money).

You should check your credit every year. Checking your credit score helps you make sure you are in good shape when you apply for new credit (cards, loans, etc.). Monitoring your credit score and history is often the first heads-up about identify theft too and is an important way to correct inaccurate information.

You can check your credit report for free once per year on annualcreditreport.com. Make sure you do it!

Give yourself an extra point for checking your credit report.

Your Financial Health Check Score

Now that you have completed the workbook, it’s time to assess your financial health. In general, the more points you score, the better your financial health. Tally up your total score and then check out the results below:

11 -17 Points: Financial Olympian

Very fit and healthy, but make sure you keep tracking yourself to ensure you stay that way!

7 – 10 Points: Fairly Fit

You’re getting by pretty well and probably don’t have any major financial issues, but with a few specific changes, you’ll be headed to the Olympics in no time.

0 – 7 Points: Need a Nurse

It’s probably time to make some changes to get your financial health back on track. Luckily, Money Minx can help you with that!

What to Do Next?

If you’re disappointed with your score, the key takeaway is to look at the areas where you dropped points, and work on ways to improve them. No matter which area this is, tracking the details properly will enable you to measure those improvements, and then have another round at the health check in 6 or 12 months’ time!

If you’re in peak financial health, keep it up! Ongoing and regular tracking of your finances is important for long-term financial health too.

Importantly, a financial health check-up should be done regularly. Your circumstances will continue to change, as will the investment landscape and economic environment. It is vital that you continue to track and assess your goals, investments, and overall financial situation, to ensure you remain on track regardless of any changes that come up.

Stay on top of your financial health with regular check-ups. Use free tools like Money Minx to maintain incredible financial health, define goals, track everything in one place, and reach your money goals – easy and simple.

Here’s to your financial health today and for years to come!

Jessica is the co-founder of Money Minx and editor of the Money Minx Blog. She's also a mama to a unicorn and a monkey.

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