Every year most of us will have a checkup done in some form or another. If it’s our car, we will have a tune up done to improve the efficiency of the performance of the car. If it’s to see our doctor for our annual checkup, we want to make sure that all of our vital parts are working correctly. We do this annual check up to make sure that we stay on top of the important things that have a significant impact on our daily lives. However, we need to do the same due diligence in regards to our financial resources, as it’s always good to know where we stand on this as well.
In order to conduct a thorough examination of our assets, we have to put together a checklist to make sure that we are covering all of the pertinent categories. In going over your checklist, you may have to add or remove some items depending on your current situation and what you’ve already addressed. If you haven’t put some of your critical things in place, you need to take the time to do so now. Your checklist may be different from mine, but these are some of the things that I think should be on most people’s list:
- Do you have an emergency fund set aside equivalent to six months’ worth of your monthly expenses?
- Do your personal savings consist of 18 months of your monthly budget amount?
- Have you started your 401(k) contributions, if so, can you add more? For 2016, the contribution amount is $18,000 and if you are over 50 years old, there is a catch-up feature that allows you to put away an additional $6000.
- Is your Roth IRA or your Traditional IRA funded for this year? For 2016, the maximum contribution amount is $5500 and for people over 50, it’s another $1000.
- Have funded your Health Savings Account (HSA) for the year? The funds put away for this purpose are pre-tax dollars and for a single person it’s $3350 and for a family, it’s $6650. This is a great fund to have to handle any unexpected or expected medical bills.
- Do you have enough insurance coverage? Health and life? Not just on your job, but outside insurance because if you lose your job, your insurance coverage goes well.
- Have you funded your child’s custodial stock account?
- Have you started a 529 Account for your child’s college? You can contribute up to $14,000 per child to this plan.
- Have you updated your beneficiary documents?
- Are you having your annual meeting with your retirement advisor to review your allocation?
- Are you having your home appraised to see how much equity value you have?
- Are you checking on your credit scores to see if you are in the higher categories?
- If you have a security portfolio, do you need to replace some of the non-performing assets?
- If you have CD’s from banks, do they mature within three years? You don’t want to be locked up longer than this period just in case the interest rates rise and your CD’s have a lower value?
This checklist is just a few items that come to mind, but I’m sure that there are more. The point is you have to take the time to put this list together in order to cover all of your bases.
After you have conducted this review, you should put this list away in a safe place where you can find it the next time that you want to perform this analysis. No matter who you are, there are going to be some items on this list that you will have to adjust as we all do. You should do this as soon as possible before something else pops up.
Now, if you don’t have these same items on your list, don’t get upset as you can prepare the list that suits your situation. But, you should make sure that some items like your emergency fund, your personal savings account, and your retirement accounts are part of your checklist as these are pillars of wealth building that you must have in place to prepare for the future.
If you have children that are adults, you should encourage them to do the same. This exercise may seem like a pain in the neck for them, but you have to stress how important this is when trying to prepare for their future. This is also important because once they get used to reviewing their financial checklist, I believe that it will help them stay on top of these actions that are essential to building wealth. Another benefit that you will get as parents is that the better they are at handling their checklist, the lower the probability is that you asked to bail them out later on down the road.
In closing, conducting this annual checkup is a critical step in making sure you have a strong financial foundation. This is similar to having your car tuned-up after receiving the diagnostic report showing what needs to be updated on your vehicle. In doing so, when things do fall apart, which they will occasionally, you won’t have to run around trying to figure out where you stand financially, as this process will allow you to know ahead of time. Additionally, you shouldn’t wait until you need to raise money quickly in order to do this checkup. It’s best done when there is no emergency, as you can review all the categories without being pressured. I hope that after reading this article you will start preparing your checklist and follow through accordingly.