How To Complete A Financial Check-In

A financial health check-in is just as important as a physical. Learn how to gauge your financial health.

Talking about physical health and going to the doctor for check-ups is a regular routine for many. So why is talking about financial health considered a taboo subject? Especially when, according to the Financial Health Network, only 30% of Americans are financially healthy.

Imagine if financial health check-ups became the norm. What if checking the weight of debt, gauging the pressure of finances, taking the temperature of a budget, and performing preventative maintenance to avoid a financial disaster were commonplace? What if financial professionals could diagnose your financial illnesses and prescribe strategies to solve these issues? If this sounds good to you, you’re in for a treat! These tools and financial professionals exist! Here are some nutritional tips to help you get and stay financially healthy.

Your Financial Check-In

Weighing Debt

The first step in a physical check-up is getting weighed, so the first step with your finances is weighing your debt. Check that your debt isn’t growing faster than you’re paying it off, evaluate the reasons for sudden changes, and choose a strategy to get your debt under control if needed.

If you are struggling to pay off debts, the debt snowball method is a great way to tackle debt from the smallest balance to the largest. With the A+ Federal Credit Union Snowball Debt Elimination Calculator, you can formulate a plan to easily calculate the number of months it will take to pay off your debt.

It’s also a good idea to check your credit score. Not only can it show you an idea of where you are financially, but it can also help you understand your eligibility for loans, credit cards, and more. Use improving your credit score as an incentive to improve your overall financial health.

Taking The Temperature Of A Budget

The nurse takes the temperature of patients to ensure they’re not sick. Likewise, it’s important to take the time to review the family budget and determine if it’s healthy or needs some care. The one rule of a budget is that expenses must never be more than income. This easy three-step process can help decide if your budget is healthy or not:

Step One

Assess Income: This means every source of income. Common sources of income are wages, self-employment, child support, alimony, public benefits, tax refund, gifts, etc. Be conservative with estimates of income that aren’t guaranteed, such as bonuses, overtime, and temporary employment. It’s best to use net income or take-home pay when deductions are involved to simplify the process.

Pro Tip: If tips are a source of income, try to average the amount. If tip income is more than the average amount, add those funds to monthly savings to avoid budgeting gaps for the months where tips are less than average.

Step Two

Assess Expenses: Assessing expenses begins by making a list of items paid for each month. There are three types of expenses:

• Fixed expenses – occur monthly, and the amount is the same, such as a car payment, mortgage, and streaming services.
• Variable expenses – occur monthly, and the amount changes every month, such as electricity, water, and groceries.
• Periodic expenses – these are the forgotten expenses in many budgets. Periodic expenses don’t occur monthly but do happen regularly, such as seasonal extra-curricular activities, tires for vehicles, and gifts.

Pro Tip: To make variable expenses realistic amounts, average the large and small bills and use the same strategy as tip income described above. When the actual amount is less than the average amount, add the difference to savings to avoid funding gaps when the bill is a larger amount.

Step Three

Analyze Results: This step is the moment of truth that includes determining the viability of the budget. For this step, subtract all expenses from total net income. If there’s a surplus of funds then congratulations – you have a viable budget, and the only thing left to do is plan what to do with that discretionary money. However, if the amount is a negative number, there are choices to make.

Pro Tip: A viable budget should include savings, entertainment, and miscellaneous spending.

An Unhealthy Budget

If a budget isn’t healthy, there are two possible solutions – increasing income and/or decreasing expenses.

Increase Income

Increasing income can be as flexible or structured as you choose. Here are a few ideas:

• Selling items online such as clothing and home décor
• Gig work such as providing rideshare or delivery services
• Selling a service such as lawn work or cleaning services
• Teach others using talent, skills, and abilities
• Using talent, skills, and abilities to create a product or service to sell

Decrease Expenses

Decreasing expenses could be a series of small or large changes, including:

• Economizing – becoming more aware of spending and reducing when/where possible. Example: planning meals to ensure there’s no food waste or enjoying free entertainment for the family. Need ideas? Try out free fun family activities.
• Reducing – find ways to spend less while shopping. Example: shopping for clothes and accessories second-hand instead of retail stores.
• Comparison Shopping – researching prices before making purchases to secure the best deal. Example: when making a large or emergency purchase, compare online to in-person shopping to find the best price.
• Elimination – sacrificing discretionary expenses either temporarily or permanently. Example: cancel all but 1-2 streaming services in favor of paying more than the minimum on credit card debts. Hint: rotate streaming services for the best outcome.
• Substitution – finding a less costly way to achieve a similar outcome. Example: instead of buying a coffee from a coffee shop, brew your own at home.

Components Of Financial Health

The main components of financial health are healthy spending, saving, borrowing, and planning. A deep dive into the family finances at least once a quarter is a great way to check on each of these components. This deep dive should include:

• Evaluating your spending to ensure there’s enough money for all essential expenses, savings, and hopefully some discretionary expenses. Also, check if any bills were late and research the cause to avoid future late payments.
• Check the amount in your savings account to determine if it’s enough to cover three to six months’ worth of essential expenses. If the amount in savings isn’t enough, adjust the budget to include regular contributions to this fund.
• Make a list of all balances owed on debt to ensure it’s healthy for the household income. If it’s not, take steps to reduce the debt and consider debt consolidation.

Pro Tip: If the debt is at an unhealthy level, visit your financial institution to discuss a debt repayment strategy. They will help you understand the steps you can take to pay off debt.

Monitor assets to ensure they remain adequately insured and there’s a plan for the estate. By adding life insurance, long-term disability, and a will, the whole family is protected from the unknown.

Understanding your finances and spending habits is essential for your financial health and should be included in your regular financial check-in. Anyone can learn financial literacy, and even those with financial skill have room for improvement. Understanding your spending habits can help you ensure a secure financial future.

Summary

Like our physical health, financial health is determined by both circumstances and choices; changing either can profoundly impact financial stress levels. Finding a way to incorporate as many of the components of financial health will help keep our bodies and minds in alignment.

A+ Federal Credit Union has resources to help you stay on top of your financial health year-round. Learn more about our financial counseling and our e-learning tool, BalanceTrack. You can set realistic goals and achieve financial stability by taking an active role in your financial health.