How to Give Yourself a Financial Check-up

The New York Times lists steps for giving yourself a financial check-up by asking (and answering) these questions:

• Is your net worth growing?
• How are your ratios? (debt-to-income ratio, savings rate, emergency fund)
• Are you spending more than you earn?
• What has changed in your life in the last year?
• Are you still adequately insured?
• Do you need to make any changes to your estate plan?
• How are you sleeping? Does your portfolio require any maintenance?
• Have your outlook or goals changed? Are you happy?

They approach it from the one-a-year perspective -- that you should review these things all at once at a given time each year. I prefer to do it more on an on-going basis, regularly monitoring how my finances are doing and where I need to make adjustments. In particular, here's what I do:

• I track my net worth and cash flow monthly. To me, they are the two measures that matter the most in achieving financial success.

• I don't look at ratios at all. I have no debt, our savings rate is very high, and we have a large emergency fund. That's all I need to know regarding "ratios."

• I have been working on my investments the past few years, consolidating almost everything I have at two places: Vanguard (personal) and Fidelity (work 401k). I used to work with six different companies with 30 different accounts (including a SEP, IRAs, 529s, etc.) and 60+ funds -- it was out of control, the time managing them all and the corresponding paperwork was a big time drain (BTW, I'm not sure these are the exact numbers, but they're close.) But I had large capital gains associated with the investments and simply didn't want to sell to move and take a huge tax hit.

Then two things happened: for a couple years, I used my investments to do my charitable giving, circumventing the tax issue. I then replaced the investment money (in an already establish Vanguard account) with cash I would have used to give to charity. I did that for a couple years and moved a significant amount around. Then the market crashed, wiped out much of my remaining capital gains, I sold and reinvested in Vanguard index funds immediately, and have done quite well since. And now I'm out of all but a couple of the accounts I didn't want to be in (hoping to close out the remaining ones soon).

• My wife and I have regular "touch base" meeting on finances, but mostly they are on auto-pilot. Once a year we have a "big picture" conversation about our finances.

How about you? How often do you give yourself a financial check-up?

Comments

[Budgeting in the Fun Stuff]

I guess I think about how we sit financially at least every week...although I never look at ratios either.

I'm actually posting my list of financial health check points tomorrow...