An annual or, at least, pre-major life event financial checkup will help to maintain your financial health or identify needed changes to restore it.  Thinking about your financial life can feel overwhelming, but here are the key personal finance-related concepts: (1) assets/liabilities/net worth; (2) income/expenses/cash flow.  Put simply, assets are what you own and liabilities are what you owe, while income is money-in and expenses are money-out.  Your net worth equals your total assets minus total liabilities, and your cash flow equals your income minus expenses.  Assets such as real estate, stocks, and bonds can generate income apart from your regular wages, pension, or social security benefits, while liabilities, such as credit card debt, mortgages, car loans, etc. incur expenses in addition to typical monthly household expenses for food, fuel, utilities, etc.  A financially healthy life starts with keeping expenses below income and investing the savings (or net positive cash flow) to build your assets and net worth to generate greater current or future income.

What is your net worth?  Are you living within your means?  Are you building a secure financial future?  What are your financial goals and are you on the way to achieving them?  A financial checkup will help to answer those questions and comprises four broad actions:

Step 1:  Gather your pay stub, bank, brokerage, mortgage, credit card, utility, and other statements that together portray your current assets, liabilities, incomes, and expenses.

Step 2:  List all the financial goals you would like to achieve, and the timeline associated with them, such as:  paying for your child’s college education in 5 years or maintaining your lifestyle in retirement beginning in 10 years.

Step 3: Analyze and project your net worth and monthly/annual cash flow for the next 5 to 10 years or longer, accounting for the goals/expenses in Step 2 above.  This should involve testing several scenarios with different savings rates, investment allocations,  and investment return assumptions to see whether and how likely your goals can be met.  Remember to budget for future emergencies such as medical procedures or a period of unemployment.  You should be building an asset base that, if not immediately, covers such contingencies in the near future.

Step 4: Based on the outcomes in Step 3, decide on and implement a strategy, such as shifting existing investment allocations or increasing your savings rate (and reducing expenses where possible), or monetizing a side-hustle.  How to best implement such a strategy, including issues to be aware of as you change investments, will be covered in a future article. If you haven’t done so already, any strategy requires establishing a monthly or annual budget.

If your financial situation and goals are fairly straightforward and you have the time, knowledge, and inclination, the steps above can be accomplished in a DIY fashion.  If you are not comfortable using financial data to project possible future outcomes, or your situation has some complexity – multiple large future expenses such as college tuition, a house purchase, wedding, etc., or you would like to understand the effects of inflation, taxes, and market downturns and other important factors on your future net worth, or you wish to explore a more customized investment plan, hiring trained financial professionals might be the best road from checkup to financial health.