What Is a Financial Health Check?

What Is a Financial Health Check?


Written by John Rothans

Jan 12, 2022

Millions of Americans get yearly health checkups to ensure their bodies work the way they're supposed to. So, why not do an annual financial health check to take the pulse of your money matters? Follow along to learn what a financial health check is and what you should consider when doing one.

What You Need to Know About a Financial Health Check

According to J.P. Morgan Chase, most financial advisers recommend conducting a financial health check at least once each year, as well as after significant life events such as a marriage or divorce.

“Even if you feel like you're in a great place financially, it's smart to review your finances routinely. This will ensure that nothing slips through the cracks that could create unexpected financial difficulties down the road,” J.P. Morgan Chase advises.

Furthermore, it gives you a chance to determine whether you're on track to meet your short-term and long-term financial goals, such as purchasing a vacation home or retiring at age 60.

Keep in mind that a financial health check doesn't need to be completed in a couple of hours. You might want to take several days or weeks to finish it.

What Factors Should You Consider When Performing a Financial Checkup?

Several factors go into performing a financial checkup. Here are five of them.

1. Reviewing Your Budget

At least once a year, it's wise to do a deep dive into your household budget and ask yourself:

  • What does my income look like? Do I need to find ways to boost my income?
  • How's my spending? Do I need to cut back in certain areas, such as entertainment or travel?

If you don't already have a budget, it's time to resolve to do that. You can create a budget with pencil and paper, a spreadsheet, or a budgeting app. In a 2021 survey by Debt.com, 80% of Americans said they follow a budget.

2. Digging Into Your Debts

It's easy to lose track of your debts, particularly if all of your bills are on autopay. Autopay doesn't translate to autopilot, though. You should stay on top of your debts to make sure they're not getting out of hand.

Americans' personal debt has grown steadily since 2008, reports Statista, with two in three Americans in debt.

A financial health check lets you:

  • Add up your debts. This will give you a clear picture of where you stand in terms of what you owe in terms of credit cards, loans, and other lending products. “Credit card debt is one of the worst types of debt due to the high interest rates, which makes it harder to pay off,” Statista notes.
  • Pinpoint high-interest debts that you might want to pay off as soon as possible. Getting rid of high-interest debts enables you to allocate more money toward retirement, vacations, and other wants and needs.
  • Go over your credit report and credit score. It's wise to look at your credit report periodically and credit score so you can spot errors on your report or can take action to improve your score. AnnualCreditReport.com provides free access to your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion.

3. Calculating Your Net Worth

Figuring out your net worth provides an overview of your financial condition.

“Your net worth is … a big-picture way to measure your overall financial health. Think of it like a snapshot that shows you where you are on your financial journey,” says CNBC.

You can compute your net worth by adding up your assets and subtracting your liabilities. Assets can include retirement accounts, savings accounts, and properties, while liabilities represent debts like credit cards, student loans, and mortgages.

“Mortgages and credit card debt accounted for 43% of all consumer debt in 2021,” according to Statista.

To simplify the math, try using an online net worth calculator.

4. Assessing Your Insurance

Car insurance, home insurance, life insurance—insurance often takes up a big chunk of your budget. To save money and ensure you're adequately protected, you should review the various types of coverage you've got. Here are some of the questions you might ask:

  • Am I missing out on discounts for my auto insurance policy? Auto insurers supply an assortment of discounts that could slash your premiums.
  • Is the insurance for my home adequate? You might want to consider buying earthquake or flood insurance in case one of those disasters hits your home. Or you might look at bulking up your liability coverage in case somebody who was injured on your property files a lawsuit against you.
  • Do I have enough life insurance? If you have family members who'd suffer financially if you passed away, you should revisit your life insurance coverage to see whether the dollar limits are still sufficient. And if you don't have life insurance, you might want to explore getting it.

Fortunately, you don't have to do this review on your own. Your insurance provider or insurance agent can assist with examining your existing coverage. Or you can use an online life insurance calculator to assess your situation.

5. Evaluating Your Portfolio

A financial health check allows you to gauge the performance of your portfolio and whether it's time for any adjustments. Questions you might ask include:

  • Is my portfolio generating the returns that I want and need?
  • Should I change the allocation of my assets? On a percentage basis, is your portfolio weighted too much toward one type of asset (like stocks) and not enough toward a different kind of asset (such as tangible assets like precious metals or real estate)?
  • Is my portfolio adequately diversified? A diversified portfolio should be diversified between asset categories and within asset categories. For example, do you own too much stock in the tech sector and too little in the real estate sector? Do you own all physical gold and no silver or platinum?

“With any [portfolio] strategy, it's important that you not only think carefully about your asset allocation and make sure to diversify your holdings when you establish your portfolio, but you also must stay actively attuned to the results of your choices,” notes FINRA, a nonprofit organization that oversees broker-dealers.

Performing a financial health check on at least a yearly basis is one of the best ways to stay actively attuned to your progress, and you can start right now.

Are your finances in fighting form, or could they use some adjustments? If diversification is one area you could use help with, call us at U.S. Money Reserve. We'll help you learn about the power of diversifying with physical precious metals.


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