Every year around your child’s birthday, they have a Well Visit. This gives the doctor an opportunity to check on your child’s health, physical progress and have a discussion regarding the next year and any issues your child might be having. These visits are preventative in nature.
As adults, we tend to slack off on these annual check-ups and only go to the doctor when something is wrong.
For personal finance, there tend to be two types of people who seek out financial planning advice. The first type has some big event that serves as a trigger (birth of a baby, job change, equity event, inheritance). The second type feel like something is wrong, e.g. they spend too much or don’t save enough. Regardless of the motivation, just like at the doctor, the process starts out the same.
#1 Take a medical history. What has happened in your life over the last 1-5 years? How do you feel about your money and financial situation today?
#2 Assess your vital signs. You need to have a starting point (some numbers) to be able to assess where you are today and view your progress over time. The two most important numbers are your net worth and cash flow. Here is how to get these numbers:
Net Worth= Assets (all bank, investment, retirement, house, cars, etc.) – Liabilities (car loan, mortgage, student loans, credit card balances, etc.). This number is a snap shot as of a point in time. The goal is to grow this number by at least 5% per year.
Cash Flow= Take-home pay – expenses. Are you coming out ahead? If yes, where do you want that extra money to go? If the number is negative, strategize on how to stop the bleeding. Can you make more money? Can you spend less?
#3 Set goals for this year and beyond. What would you like to accomplish over the next year? How do you want to feel about your finances a year from now?
#4 See a specialist if needed. Your own self-diagnosis may leave you wanting more information or a professionals’ opinion. The fiduciary standard is meant to be like the Hippocratic oath, which means a fiduciary puts the interests and needs of his/her clients first and foremost. A Certified Financial Planner professional serves as a Fiduciary. Trusting the advice you get is key!
Write steps #1-4 down and keep in a file, just like you probably do with your child’s medical information. After your first financial Well Visit, it is easy to keep up the annual ritual. Don’t wait until something is wrong for a check-up.