If you’re like most people, you probably don’t think about your financial health very often. But just like your physical health, your financial health is important to maintain. Fortunately, giving yourself a financial health check in Australia is not difficult or time-consuming. In fact, it can be done in just seven steps.
1. Know Your Net Worth
Your net worth is the value of your assets minus your liabilities. To calculate your net worth, simply add up the value of your assets and subtract your liabilities. Your assets can include your savings, your home equity, and the value of your investments. Your liabilities can include your mortgage, your credit card debt, and any other loans you may have.
2. Know Your Credit Score
Your credit score is a number that lenders use to determine whether or not you’re a good risk. The higher your credit score, the more likely you are to be approved for a loan. You can get your credit score from any of the three major credit reporting agencies: Experian, Equifax, and illion.
3. Know Your Debt-to-Income Ratio
Your debt-to-income ratio is the percentage of your monthly income that goes towards paying your debts. To calculate your debt-to-income ratio, simply divide your monthly debt payments by your monthly income. For example, if you have a monthly income of $3,000 and your monthly debt payments are $600, your debt-to-income ratio would be 20%.
4. Know Your Savings Rate
Your savings rate is the percentage of your income that you save each month. To calculate your savings rate, simply divide your monthly savings by your monthly income. For example, if you have a monthly income of $3,000 and you save $300 each month, your savings rate would be 10%.
5. Know Your Investment Mix
Your investment mix is the combination of different types of investments that you hold in your portfolio. The three main asset classes are stocks, bonds, and cash. Each asset class has different characteristics, and each will perform differently in different market conditions.
The right mix of assets will depend on your investment goals, risk tolerance, and time horizon. For example, if you’re retired and need income, you’ll likely want a higher percentage of bonds in your portfolio than someone who is still working and has a longer time horizon.
You can find out what your current investment mix is by looking at your investment statements or by using a tool like Morningstar’s Instant X-Ray.
6. Know Your Insurance Coverage
Insurance is one of the most important, but often overlooked, aspects of financial planning. Everyone should have adequate health, disability, and life insurance.
Health insurance is important to have in case you get sick or injured and need medical care. If you don’t have health insurance, you could be faced with tens of thousands of dollars in medical bills.
Disability insurance replaces a portion of your income if you’re unable to work due to an injury or illness. This type of insurance is especially important for people who rely on their income to support themselves or their family.
Life insurance provides financial protection for your loved ones in the event of your death. If you have young children or a spouse who relies on your income, life insurance is a must.
7. Know Your Estate Plan
An estate plan is a set of documents that outlines your wishes for what happens to your assets after you die. If you don’t have an estate plan, your assets will be distributed according to your state’s laws of intestate succession.
A well-drafted estate plan can help you avoid probate, minimise taxes, and ensure that your assets are distributed according to your wishes.
Conclusion
If you want to get a handle on your financial health, there are seven key areas you need to focus on: income, expenses, savings, debts, investments, insurance, and retirement planning. By evaluating each of these areas, you can develop a clear picture of your financial situation and identify areas that need improvement.
With this seven-point checklist in hand, you’re well on your way to financial success!
If you are looking for the best sustainable investment tips on the Gold Coast, look no further than our expertise here at New Wave Financial Planning. We are a financial advisory firm specialising in budgeting and cash flow, superannuation advice, building wealth, amongst other things. Call us today, and let us discuss all your financial options.
