Annual Health Checkup is not a new term for doctors, in fact you only recommend this for better and timely diagnosis of any illness. The diagnosis helps us to take precautions or start medications or at least make us aware of the health issues that require our attention.

Same way Annual Wealth Checkup lets us look at our financial life holistically and makes us aware of the areas that require tweaking and improvement for better financial health. 

The purpose is to ensure you’re still managing your money correctly and taking a look at how you’ve done financially over the last twelve months.

It makes sense to check your finances at the beginning of the year, as this is generally the time one reflects on the past and resolve to improve the present and future, and finances play a crucial role in overall wellbeing.

Now the question is How to do the Annual Wealth Checkup?

Start with evaluating your Personal Situation, as in what changes have taken place in your personal situation since last year’s review and what changes do you anticipate in the coming future? 

A major change like Job Shift, Starting a New Practice, divorce, Getting married or adding a baby to your family, New house, Moving to a New Place or country, Retiring etc. can alter your income and your lifestyle significantly.

You may need to adapt your budget, your spending, your savings, and your investments. Giving a focused thought to this in advance will make the transition much smoother.

Revisit and Reset Your Goals

Depending on the change in personal situation, you may like to revisit and reset your goals. Like for e.g. You may like to study further to upgrade your knowledge in specific specialization. You may like to add Child future as one of your financial goals, Repayment of some loans due to recent spike in rates, Increase of emergency fund due to family’s medical profile etc.

You may also like to Revisit the last year goals and Evaluate your progress. Make the adjustments as needed. 

Check your Protection Plan

Are you adequately Insured of all the Visible Risks like Death, Health, Disability? This is not about having a number of policies but a decent and required Insurance coverage.

Review the Insurance policies that you have. Do they actually play any role in your financial wellbeing and support in your goal achievement? Or are you just continuing for the sake of doing it.?

It’s high time you should value your money and make the most of it. It’s not about if you are generating return from your investment, but how supportive your investments are towards your goals. 

Keep your Lipid profile in Check (Your Debt and Savings Structure)

I am not going to tell you how to keep your heart healthy by keeping your lipid profile in check. The doctors are better qualified to discuss this subject,  I am simply relating the lipid profile to the basic ratios that everyone should check on a regular basis to keep their finances in good shape.

It is essential to keep cash flow healthy as it is the lifeblood of one’s personal finances.

You need to understand the kind of Loans you are serving? Is it a good or bad loan? How much savings are you doing currently and in what direction? What is the total quantum of debt you have in comparison to the Assets you have built?

Your total EMIs should not exceed 40% of your monthly income. and if it is only for Bad loans (LDL) then the percentage should be 10-15%.

Savings (HDL) should start from the day you get your first paycheck and should be at least 20% of your monthly Income, even if you are not targeting any goals.

In personal finance, you may treat the high debt levels i.e. Total Liabilities as a metaphor for Triglycerides.

High debt levels in combination with Low savings and high bad EMIs, increases the risk of financial disaster.

Ideally, your total debt value should not be more than 50% of your assets.

I have written a detailed article on this topic, you may read here.

Stress Test of your Personal Finance (Liquidity Situation)

Stress test in finances is an analysis conducted under hypothetical unfavorable economic scenarios, such as a deep recession or financial market crisis, to determine whether the institution, especially a bank, has enough capital to withstand the impact of adverse economic developments.

Bank stress tests were widely put in place after the 2007-2009 global financial crisis, the worst in decades.

When you deal with financial institutions like banks , Insurance companies, etc., you would also want them to conduct this stress test at regular intervals, so as to be secured on the financial health and continuity of the same.

But when it comes to your own personal finances, its difficult to accept that we may also need a financial stress test, so as to be able to pass through the uncertainties that may crop up overtime. 

When things are going comfortably, you tend to take things very lightly, without realizing that you also have some stakeholders dependent on you and thus your better money management is important for their survival and success.

In Covid times, you have faced the real stress on your money. Health workers, Doctors, were exposed to the Major Risks. Even those who were not the front liners had faced some financial challenges, due to partial closure of the Hospitals and only sick patients got attended to. 

No one was sure that when the lock down would open, will their jobs be there or not. Many have experienced pay cuts or no pay in these times.

Situations like these may also come in the future, and it’s wise to be prepared with sound financial health, to face the times with confidence. And Stress test in personal finances is one of the tests that you can do at regular fixed intervals to keep abreast with your financial health and take action as and when required.

Read : How to conduct Stress tests in personal finances?

Tax and Estate Plans, may also be looked at but may be once in 2 or 3 years. All your Financial documents should be readily accessible to the stakeholders or to the executor of the same. There has to be proper nomination in all financial Investments. WILL or Private trust should be property drafted and operated. 

There is very Limited tax saving options and same get reviewed every year in Union Budget. So either at that time or starting of the new financial year you may have a look at your tax structure and plan, if there is any possibility of saving on taxes. 

Conclusion:

Annual Wealth Checkup like Annual Health Checkup is an important exercise which no doctor should ignore. It keeps your financial health in check. You may engage with a Financial Planner or do it yourself. A Professional may give you a third party opinion on what needs improvement or how to make things better. 

A financial checkup can help keep you on track toward your financial goals. If you decide to make changes after your checkup, you should implement them as soon as possible. Then you’ll be able to relax until it’s time to do it all over again.