Getting your finances in order can seem like a daunting task. That’s why having a comprehensive personal finance health checklist is so important. A good checklist helps you methodically review all aspects of your financial life, identify any problem areas, and take corrective action.
In this post, we provide an essential personal finance checklist covering all major areas of your financial life. We’ll review your net worth, budget, debt, credit, insurance coverage, retirement savings, investments, estate plan, and more. Consider this your one-stop shop for assessing financial health and taking steps to improve it.
Review Your Net Worth
Your net worth is a snapshot of your overall financial health at any given time. It’s calculated by subtracting your total liabilities (debt owed) from your total assets (what you own). As a first step, tally up all your assets – like cash accounts, investment accounts, and property values. Then, total your liabilities, including mortgage debt, student loans, credit card balances, auto loans, and any other money you owe. Subtract your liabilities from assets to find your net worth.
Ideally, you want your net worth to be positive and growing every year. A declining net worth over time indicates your debt is outpacing your asset growth and needs to be addressed.
Examine Your Budget and Cash Flow
While knowing your net worth is important, you also need a clear picture of your ongoing cash flow. That’s where budgeting and examining your monthly and annual spending patterns comes in handy.
Start by documenting your average monthly income sources and expenses. Income may include your salary, self-employment income, investment returns, child support received, etc. When tallying expenses, be sure to include essentials (like housing, utilities, transportation, food, insurance), as well as discretionary spending.
Once you have documentation, you can determine if you routinely spend more than you earn. Step one is trying to boost income where possible. Then, focus on cutting unnecessary expenses. Getting your budget balanced on a month-to-month basis is key to financial health.
Evaluate and Tackle Debt
For most households, debt in the form of a mortgage, student loans, auto loans, and credit cards is a fact of life. However, unchecked debt can quickly snowball and damage financial health.
As part of your checklist, compile documentation on all outstanding debt, including the type of debt, principal owed, minimum payment amounts, and interest rates. This information will allow you to strategize debt payoff.
In general, higher interest-rate debts should take priority. For example, if you have $10,000 in credit card debt at 19% interest alongside a $15,000 student loan at 7%, tackling credit card balances first is smart. You’ll save money on costly interest payments. Automating payments on all debts so you avoid late fees is also wise.
And importantly, while paying down past debts, limit accumulating new debt without very good reason. Using short-term financing like credit cards to fund lifestyle expenses you can’t otherwise afford is never advisable.
Review Your Credit History and Scores
Lenders, landlords, insurance companies, and even employers review your credit when deciding whether to work with you. That means maintaining good to excellent credit scores should be a top priority.
Check your current credit reports from the three major reporting bureaus (Experian, Equifax, and Transunion) to validate that all accounts listed actually belong to you. Look for signs of fraud or identity theft. Also, verify there are no errors negatively impacting your scores, like incorrect delinquent status on accounts or debts you’ve paid. Dispute errors with the credit bureaus.
With a solid understanding of your credit history and scores, you can better manage them moving forward. Keep credit card balances low, never miss payments, and limit new credit applications to occasional major purchases like auto loans. Habitual smart credit behaviors will yield scores of 740 or higher over time.
Examine Insurance Coverage
Making sure you have adequate insurance coverage protects your finances against unexpected losses. Important policies to evaluate include health, disability, homeowners/renters, auto, umbrella liability, and life insurance.
For health insurance, choose a policy with premiums and deductibles you can afford, alongside coverage suited for your medical needs. Disability insurance replaces lost income should injury or illness prevent you from working. Homeowners insurance covers damage and liabilities relating to home ownership. Renters’ policies offer similar protections for non-homeowners.
Auto insurance is mandatory in most states, but consider optional coverages like collision and comprehensive based on your car’s value. Umbrella liability insurance picks up where other policies leave off, providing additional liability coverage.
Also, determine if you need life insurance providing income replacement or estate preservation in the event of your death. If family members are financially dependent on you, coverage is key.
Assess Retirement Readiness
One of the biggest threats to your long-term financial health is not saving adequately for retirement. The earlier you start putting money away, the more time it has to grow. As part of your checklist, run projections to estimate your retirement income needs, sources, and potential shortfalls.
Sources may include Social Security benefits, traditional pension payments, 401k/IRA investment accounts, rental income, etc. If projections uncover a likely gap between your needs and resources, increasing retirement contributions now can help close it.
Even if retirement is decades away, reviewing different savings goal amounts and investment returns will clarify how much you need to save. Setting yearly retirement benchmarks also keeps you accountable. Financial professionals can run detailed projections and recommend saving and investing strategies.
Audit Investments
Building an investment portfolio outside of your retirement accounts can further boost your net worth. Assess what investments, like stocks, bonds, mutual funds, real estate, etc., you currently own. Look at historical returns to determine if they are performing as well as expected.
Also, decide if you should expand into other asset classes not currently represented to diversify. The ultimate goal is an optimized portfolio aligning your risk tolerance, time horizon, liquidity needs, and goals. Long-term capital gains from investments make them a powerful wealth-building tool.
Discuss Estate Planning
No personal finance checklist is complete without assessing if estate planning documents are in place in case of your incapacity or death. These legal documents help ensure your financial wishes are followed when you can no longer make decisions. They also spell out guardianship plans for minor children should anything happen to parents.
Key estate planning documents include advance medical directives like living wills, powers of attorney for finances and healthcare that name people to manage affairs on your behalf, last wills and testaments detailing the distribution of probate assets, and trusts.
Estate planning also involves designating properly formatted beneficiary listings on all applicable accounts like insurance policies and retirement accounts. Review beneficiaries to verify ex-spouses aren’t still listed unless intended.
Keep Your Plan Updated
Remember, your financial life is dynamic, so your personal finance checklist should be revisited at least annually to capture changes. Major events like marriages, divorces, home purchases, job changes, inheritances, health diagnoses, and new family members all impact finances. Be diligent about reviewing your plan so you can take advantage of financial opportunities and better manage challenges.
Use this comprehensive personal finance checklist as your guide to assessing current health while identifying areas for improvement. Addressing red flags now leads to solid financial footing both today and for your future.
