I’m pretty diligent about going for annual health check-ups to make sure I’m doing fine physically and mentally. The routine measurement taking, blood tests and other checks help to pick up health issues early so I can take steps to avoid potentially bigger and more costly problems. On the other hand, I’m always relieved when the results are all normal, which tells me that I’ve been doing a decent job of looking after myself.
For a while, I felt a little smug about rarely missing my annual health check-up. I was finally adulting, I thought. That was until I started working in finance and realised I was overlooking another important annual check-up: the financial check-up. You may be rolling your eyes thinking it’s entirely different from a health check-up. However, the principle behind it is the same: taking charge of your life, be it your health or finances.
Also, poor financial health can take a toll on your physical and mental well-being. So, like health check-ups, financial check-ups shouldn’t be ignored.
What’s a financial check-up or financial review?
You may be asking, “What’s a financial check-up?”. A financial check-up is an assessment of how you’re faring in the money department. This holistic overview of your personal finances and financial situation helps you in three ways:
- identify and tackle any issues that could interfere with your financial security early,
- determine if you need to do anything differently in order to achieve your financial goals, and
- ensure your financial plans remain suited to your present needs, circumstances and aspirations.
Thankfully, a financial check-up doesn’t involve the needles or chilly reception area associated with a health check-up, and you can do it on your own. However, starting can be challenging when you’re doing it for the first time (or the first time in a long while).
My 6-point Financial Check-up Checklist
An annual personal financial health check-up is crucial for ensuring you don’t miss anything vital to your financial fitness. You don’t have to wait till the end of the year to do it, though. Halfway through the year is probably better as it gives you enough time to make any necessary modifications that’ll help you achieve the result you want by the end of the year. As your financial goals increase or your finances become more complex, you could make financial health check-ups a twice-yearly or quarterly affair.
If you think doing your own financial check-up is difficult, I’ve got you covered. You can easily do your own financial health check-up by following a checklist.
Is it time to assess your financial fitness? Try my 6-point Financial Check-up Checklist that I’ve put together after years of doing my own financial check-ups.
Here are the six areas to examine in your financial check-up:
1. Look at your credit report
Huh… credit report?
If you didn’t know that credit reports even existed, you’re probably not alone. Your credit report is somewhat like your financial health report card. It contains details including your loan and credit card payment history as well as your credit card balance across different credit providers. These are useful insights for a financial institution that’s considering if it should grant your application for a S$500,000 home loan, for instance.
Your credit report can also give you an overview of your financial health and help you zoom in on areas that can be improved. One key figure in your credit report is your credit score which is like your financial health rating. Your score can be anywhere between 1000 and 2000, where a higher number is generally seen as better. Statistics indicate that individuals with a score closer to 1000 are more likely to default on a repayment in the next 12 months. Conversely, those with a score closer to 2000 are less likely to do so. Working on improving your credit rating – for instance, by paying your credit card bills fully and promptly, and cancelling underused credit cards so you don’t have more open credit lines than you need – can improve your financial health.
You can purchase your credit report online from Credit Bureau Singapore at S$8.
2. Keep track of your goals
Setting goals helps you work towards the financial state you want to be in – and monitoring your progress keeps you on track to accomplishing your goals. Check in with your goals by indicating the progress you’ve made with each of them. Strike off goals you’ve attained and replace goals that are no longer relevant. For instance, if you were saving for a Bali trip but just found out that your company will be taking you there for your annual overseas retreat, you could replace your Bali holiday goal with a new one. (P.S. Check out why you need to buy travel insurance before your holiday.)
If the needle hasn’t moved much on certain goals, ask yourself why. Are they no longer important or do you need more time or a different strategy to attain them? Adjust your goals and strategies based on what you can reasonably achieve.
3. Consider your life stage
Your life is constantly evolving, so factor your life stage when doing a financial health check.
Have you just decided to buy a Build-to-Order flat by the end of the year? This could mean looking at new investment options to accumulate sufficient savings.
Have you just started a new, higher-paying job? It’s probably time to ensure your emergency fund comprises six months of your new salary, not your salary from 10 years ago.
Are you and your spouse about to welcome your first child? This could mean setting aside more of your monthly budget for childcare needs and cutting back on other spending.
Your financial aspirations and priorities can change at any time, and your financial plan should evolve with it.
4. Pay attention to external economic factors
Whatever happens on the macro level affects you on the micro level. Inflation, recession fears and even GST hikes all have an impact on your financial health.
If you expect to pay more for food, healthcare and education costs because of inflation, you’ll want to ensure your current salary can keep up with the projected price hikes. You may even decide it's time to work towards a pay raise or look for a new job.
Meanwhile, a gloomy economic forecast or rapid automation could threaten job security. If you’re worried about retrenchment, you may want to put your grand side hustle idea into action or consider retraining to open up more economic opportunities for yourself.
5. Keep your taxes low
As your salary grows, so will your taxes, but no one wants to pay more taxes than they should. That’s why I always try to maximise all the tax reliefs I’m eligible for.
As long as we haven’t crossed into the new year, you still have time to top up your parents’ CPF Retirement Account, make a monetary donation to charity or top up your own CPF Special Account. You get tax reliefs on all of these things, which in turn lowers your taxable income for the following year so you’ll be charged less in taxes. Do what you can this year for sweet rewards next year!
6. Don’t pay for more insurance than you need
While you may need insurance to cover your life, health, home, car and so on, you shouldn’t be over-insuring yourself or spending more than you should for essential coverage. Paying more for insurance you don’t need means less budget for other things like family trips or savings goals. So, if you’ve been looking to enhance your CareShield Life coverage for higher severe disability payouts and there’s a great discount, you may want to take advantage of it rather than pay more for the same coverage later.
It's also important to review your coverage amount. If your kids are financially independent, you may not need as much life insurance coverage and may want to convert your term life coverage to an endowment plan. On the other hand, if you recently welcomed a new child to your family, you may need a higher sum assured on your life insurance so your family’s needs will be adequately covered should you die.
You should also look at plugging any gaps in coverage. For instance, if you’ve just bought a new Build-to-Order flat, you’ll need home insurance to insure your home contents.
When it gets too much, leave it to the pros
A financial check-up gives you a better picture of how you’re managing your finances and helps you determine if you’re on course to attaining your financial goals. From there, you can decide on the changes you need to implement to score your goals.
The checklist above is based on my own experience and is in no way meant to be professional advice. So, while I hope the points above come in handy when you’re doing your own financial health check-up, there are times when seeking the expert advice of a trained financial adviser is absolutely necessary.
If it all gets too overwhelming or your finances are a lot more complicated – which tends to be the case when you’re older and have more financial commitments and investments – it’s good to know that you can always turn to the professionals for your financial health check-up.