Financial Health Check – Checklist

September 20, 2018 Financial Planning

Life and personal finances are heavily linked – they both change over time. Many key life milestones are also inseparable from related, financial milestones. Of course, the earlier you start to plan for these milestones, the more pressure you are taking off yourself to live financially secure in the future. That’s why its so important to maintain a solid vision for where your money goes, and to start performing regular ‘health checks’ on your personal finances, to make sure you are staying on track to hit future goals. We have provided the following points to act as this health check, so hopefully getting these sorted in your 20s, you can make it easier to plan in your 40s, 50s and 60s.

1. Track your Expenses.

It is key to get snapshots of where your money is going and how investments are performing. By using a spreadsheet to track daily, weekly, or monthly expenses, smart choices based on your current net worth can be made. Alternatively, budgetary planning websites such as Mint.com can aid in this process.

2. Maintain a Budget.

It is vital to know what your income is, and not to outlive your means. That’s why consciously designing a budget that protects you from overspending can, in the long term, help saving targets be reached more effectively. Often, complex budgets are better, as it can be easier to see where your money is directly flowing.

3. Add Beneficiaries to your Financial Accounts.

Add beneficiaries to your financial accounts in case of an unfortunate event, while designating who should receive assets in the event of death. Of course, for many this will be parents and siblings in early life, but this role becomes equally pertinent following potentially marriages and children.

4. Save for Retirement.

This is perhaps the most important reason for completing a financial health check – to ensure a comfortable level of savings for retirement. It is important to start saving for retirement early due to the role of compounding. As an example, someone who starts saving £149 a month at 30 can obtain a pension of £10,000 a year at the age of 68. As a comparison, if that person begins saving at the age of 40, they must pay in £290 instead, to achieve the same pension. The choice of savings vehicle is equally important – whether it be an ISA or specified pension funds.

5. Plan Financial Goals.

It is key to identify your own tailored master plan. This involves the main milestones you wish to achieve, and when you are likely to achieve them. Of course, the content and timing of these goals may differ from person to person, some examples being such as getting married, moving country, or having children. The sooner you can identify a rough plan, the sooner you can tailor your savings and budget targets accordingly.

6. Pay Down Debt.

Paying off the most important debt first is a must – often, tackling credit card debt is a key issue for many people. A good method to abide by is paying off the principle on credit card debt first, due to the excessively high interest rates that accumulate, rather than other debt such as student loans. It

is important to keep in mind that monthly credit card payments may only cover interest, therefore the debt itself should be paid off as soon as possible.

7. Maintain a good Credit Score.

A credit score is a number which represents your credit worthiness, while maintaining a good credit score results in low interest rates when borrowing for big purchases. Thus, not defaulting on debt is key to reducing interest payments over the long run. In the UAE, this number is between 300 and 900. You can check your credit score by visiting Al Etihad Credit Bureau’s customer service centres and providing your valid Emirates ID, passport copy and valid email address.

8. Establishing an Emergency Fund.

It is important to set some money aside in a separate emergency fund, that is easily accessible. If an emergency situation (healthcare or otherwise) arises, you will want to avoid paying fees to access a retirement account or taking out a loan.

9. Negotiate.

A key component of saving money is to reduce the amount of money flowing out from your account. Negotiating with service/subscription providers, or choosing between competitors for the most appealing price is a must for anyone looking to protect their savings. Equally important here is cancelling any subscriptions that are not needed.

10. Rebalance Financial Portfolios.

Rebalancing your savings or investment portfolios on an intermittent basis helps to place your investments based on your current goals, and your current risk appetite. This makes regularly updating your investments a helpful exercise, and may aid in reducing impulsive trading decisions.

11. Life Insurance.

Obtaining a good life insurance policy is just another means of covering a ‘what if’ scenario. Look into buying either individual, or group policies for couples.

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