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Time For Your Check-Up…

Money-Guy 03-26-2010

With all of the media coverage concerning the new health care legislation, it would be easy to focus on the ins and outs of the new bill. However, we thought we would go a different route and talk about your financial health. Just like you keep track of your blood pressure, weight, what you eat, and how much you exercise; you should also keep track of how well your finances are doing.

There was a great article provided by The New York Times titled “How to Self-Diagnose Your Financial Health”. The author does a great job of comparing getting an annual physical to annually checking the “health” of your finances.

As you listen to the show, Bo and I walk through the 8 questions you should ask yourself each year to determine if you are still on track. According to the article, these questions were taken from financial planners and they are the actual questions they use when meeting with clients.

  1. Is Your Net Worth Growing? You need to make sure that the growth of your assets is outrunning the growth (hopefully decreasing) of your liabilities.
  2. How Are Your Ratios? The article talks about debt-to-income ratio, savings rate, and emergency funds. Remember these rules of thumb: Shoot for 30%  or less debt-to-income, keep at least 6 months of expenses in emergency reserves, and depending on your stage in life, save

    at least

    15% – 25% of your gross wages.

  3. Are You Spending More Than You Earn? This is Smart Decision Making 101. Live below your means and save for the future. Remember what Dave says, “Live like no one else so that you can live like no one else!”
  4. What Has Changed in Your Life in the Last Year? Remember to think about those events that impact your financial life such as births, marriages, divorces, moves, employment changes, paying for college, etc.
  5. Are You Still Adequately Insured? The key to becoming financially independent isn’t only about the assets you accumulate, but it is also about how you protect those assets. Make sure you have adequate life, disability, and health insurance. You also may want to look into an umbrella policy or long-term care insurance depending on your individual needs.
  6. Do You Need to Make Any Changes to Your Estate Plan? Have you had your wills recently revisited? Make sure all of your beneficiary designations are up-to-date and reflect your posthumous wishes. 
  7. How Are You Sleeping? Does Your Portfolio Require Any Maintenance? It is a great time to make sure that your Risk Capacity and Risk Tolerance line up. We have had a big run up in the financial markets over the last year, so you want to make sure your asset allocation still makes sense and doesn’t need any tweaking.
  8. Have You Outlook or Goals Changed? Are You Happy? I am going to take this directly from the author, Tara Siegel Bernard:

“At its core, financial planning is not simply about money. It is about finding the best way to finance what you want out of life, whether that is spending more time with family and friends or traveling. And planners use their annual checkups to help clients make sure they are doing that.”

To close out the show, we touch on real estate investing and share some things you may want to watch out for if you are one of those people picking up investment properties right now.

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