Time For A Financial Checkup

by Joseph · 0 comments

in Personal Finance

It’s midway through the year.  How have you done with the financial goals you set for yourself in January?  If you never set any that’s ok.  It’s never too late to start.  It’s a good time to check your finances and make any necessary adjustments to keep yourself on the right track to financial independence.  For a great starting point check out the following list.

Emergency Funds: Here’s a pop quiz for you.  How many months worth of expenses have I managed to save up so far in my emergency fund?  If you answered “3 months” then pat yourself on the back.  You deserve a cookie.  Enough with the cliches.  A well prepared personal finance portfolio should have AT LEAST three months worth of expenses.  Most financial advisers recommend six months worth, as do I.

Net Worth: A net worth that’s holding steady or rising is a good sign and you’re doing well.  To calculate your net worth add up your assets and subtract your debts.  Pretty simple right?  You should calculate this number on at least a semi-annual basis to make sure that your Net Worth is increasing.  If it’s not you need to change your financial habits.

Insurance Policies: In this day and age insurance is as much a necessity to a healthy financial policy as is a 401(k) or emergency savings.  You don’t want to pay for more coverage than you need, but even more so you don’t want to be underinsured in case of a catastrophe.  Another thing you want to review is your deductibles.  If you have a substantial amount of cash on hand to cover a high deductible you might consider increasing your deductibles in order to lower your annual insurance premiums.  Assuming nothing goes wrong this should pay for itself within a few years (or less).

Retirement Planning: Are you ignoring free money?  Does your employer offer a 401(k) or similar retirement plan?  If the answer is yes then are you contributing to it?  If you answered no, then start now.  Most employers that offer a 401(k) retirement plan also offer matching contributions up to certain amount.  These can range anywhere from 1-10% of your contributions.  If you’re lucky enough to get a matching contribution on the upper range then it’s even more reason why you need to be contributing to such a plan.  For more information check out a previous post of mine: Are You Ignoring Free Money?

Investment Portfolio: It’s always a good idea to review your investment portfolio on at least a quarterly basis.  If you are not comfortable with self-managing your portfolio then call your financial advisor to review it for you.  If a large portion of your investments are in bonds or other fixed-income investments you might consider putting more into stocks, especially considering they are down sharply this year.  This should lead to a higher return over the long run.  On a side note, if you are in your twenties or even thirties and you have more than 5-10% of your investment portfolio in bonds then get them out.  Bonds – as my friend Ramit from iwillteachyoutoberich says – are not for young people.

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