Give Yourself a Financial Check-Up

A financial check-up  is as important as an annual physical with your doctor.  Like a medical exam, a review of your finances can identify strategies to improve “financial fitness” (e.g., saving more money and diversifying investments and screen for potential problems, such as lack of a will or a high debt-to-income ratio.

Check-up Method #1 is financial quizzes.  Rutgers Cooperative Extension’s Financial Fitness Quiz consists of 20 questions about various financial practices.  Those with a low score indicate areas for improvement. Another check-up method is a net worth statement.  Net worth is assets (what you own) minus debts (what you owe). 

Assets have three categories: liquid (cash assets, such as a CD or money market mutual fund), tangible (personal property such as a house and car), and investment (examples: mutual funds and 401(k) plan).  Short-term debts are those that you expect to repay within a year (example: credit cards) and long-term debts, like a mortgage, last longer.

Another financial check-up tool is the “Wealth Test” from the book The Millionaire Next Door which assesses financial progress based on two key factors: age and pre-tax (gross) income.  Simply multiply these two figures together and divide by 10 to see what your net worth should be.  Obviously, the higher the number relative to this benchmark, the better.

The next time you’re scheduling a medical check-up, take time to assess your finances also.  For resources to analyze your finances, visit the Rutgers Cooperative Extension personal finance Web site.