Doctor's Orders: It's Time for a Financial Checkup!

Hi Reader,

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As we reach the mid-year mark, it’s a great time to add a financial check-up to your to-do list. Just like medical doctors recommend bi-annual or annual full-body checks to ensure everything is on track, I would argue that it is wise to apply the same diligence to your finances. Think of it as a preventative measure for your financial future. With six months already behind us, let’s explore how to conduct a financial check-up.

Why You Need a Financial Check-Up

Like a medical examination, a financial checkup allows you to detect problems early, problems such as missing annual or long-term targets. It enables you to monitor progress and recalibrate your budget and strategies. This is especially important during major life changes. For instance, if you have changed jobs, started a family, or moved across countries in the last few months, your financial situation and goals may have shifted.

How to Conduct a Financial Check-up

Reviewing your vitals: Understanding your current financial situation

When you visit a doctor for any reason, the first step is usually to check your vitals for any abnormalities. Similarly, you should begin your financial audit by understanding your current financial picture.

Here’s a guide to get started:

- Spending vs. Income: The temperature check

• What proportion of your income have you been spending and saving?

• Is this optimal and aligned with your goals?

• Are your current savings earning good returns? Could you do better with a new account or bank?

- Debt Repayment: The Blood Pressure check

• If you have outstanding debt, is the repayment on track?

• Will you pay down the debt as planned if you continue at your current pace?

• Can you refinance the debt (borrow at a lower interest rate to pay down the debt) and reduce your interest burden?

- Emergency Fund: the Insurance check

•  If you lost your income today, how many months could you sustain yourself?

• Can you handle an unplanned emergency without disrupting your financial goals or standard of living?

• If you have an emergency fund, Is your emergency fund earning a basic return while remaining accessible? 

- Investments and Assets: the Blood work

• What investments do you currently own and how much are they earning?

• In terms of returns, are your investments performing optimally in light of current market realities?

• Are you overpaying for those returns? For example, are your mutual fund or ETF expense ratios comparable to the industry average?

• Are your investments diversified based on your circumstances or are you putting all your eggs in one or ‘related’ baskets?

The Treatment Plan: Making Adjustments

After an honest review, it’s time to plan for the rest of the year and make necessary adjustments.

- First, set realistic financial goals

• Adjust your spending-to-income ratio to fit new realities and reallocate funds within different ‘buckets’ of your budget. This is the purpose of the review.

- In the case of debt repayment

•  Decide whether to stick with the repayment schedule or adjust the pace of repayment based on your mid-year review.

• Consider borrowing from a cheaper source to pay off the initial debt and save on interest payments.

- Savings and investments

• You should consult a financial advisor to help diversify your portfolio and take advantage of changes in the financial markets.

• Your investment strategy should reflect changes in your circumstances. For example, if most of your investments are in the tech sector and you recently started working in the sector, an adjustment is necessary.

Next Steps

Just as you wouldn't wait another year for a health check-up if you felt something was off, keep a regular eye on your finances. Regular reviews are essential for financial well-being and can help maximize benefits such as tax allowances before year-end. You already work so hard for your money, make sure it works hard for you too.

Questions or comments? Just reply to this email!

Act Now:

•  Set aside some time this weekend to conduct your Financial review

Reflect on This:

• What will $100,000 get you today?

Till next week, I am rooting for you, money-ly!

Dee

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Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.