Good evening, ladies and gentlemen, and thank you for being here. Today we’re going to focus on the next critical topic in our journey: “Financial Wellness Self-Assessment.”
Understanding your current financial health is the first step toward achieving financial wellness. It’s similar to a doctor’s check-up but for your finances. You can’t treat an ailment without first diagnosing it, and the same holds true for your financial health. So, let’s delve into this vital topic.
A financial wellness self-assessment involves taking an in-depth look at your current financial situation to identify strengths, weaknesses, opportunities for growth, and potential threats to your financial stability. It requires honesty, commitment, and a willingness to face some potentially uncomfortable truths. However, this process is crucial because it will serve as the foundation upon which you build your financial future.
There are six key areas that we’ll explore in a comprehensive financial wellness self-assessment:
- Income: The first step is to evaluate your income. This isn’t just about how much you make; it’s also about the stability of that income. For example, two people might both earn $50,000 annually, but one has a stable job with a regular paycheck, while the other is a freelancer with an unpredictable income flow. The latter may have more financial stress despite the same gross income.
- Expenses: Next, we’ll assess your expenses. We’ll look not just at the amount you’re spending but also at where your money is going. For example, Mike earns a good salary, but he’s spending a large part of it on eating out and online shopping, leaving little for savings or investments. On the other hand, Sarah, earning the same as Mike, keeps her discretionary expenses low, allowing her to save and invest more.
- Savings: This refers to the amount of money you set aside from your income. A healthy savings account is a good indicator of financial wellness. But it’s not just about the amount; it’s also about consistency. Small, regular savings can often be more beneficial in the long run than sporadic, larger amounts.
- Debts: The next area of focus is debt. Some debt can be a useful tool when managed correctly, but excessive debt can be a significant threat to financial wellness. For instance, having a mortgage can be seen as ‘good’ debt as it’s an investment in an appreciating asset, whereas high-interest credit card debt is generally seen as ‘bad’ debt.
- Investments: The fifth area we’ll assess is your investments. This is about more than just whether you’re investing; it’s about whether those investments are diversified, suited to your risk tolerance, and aligned with your long-term financial goals. For example, Jenny has invested all her savings in a single company’s stocks, leaving her financial future vulnerable to the company’s performance. In contrast, Robert has a diversified portfolio spread across different asset classes, reducing his risk.
- Protection: Finally, we’ll look at your financial protection. This includes insurance (health, life, disability, property) and emergency funds, which can protect you from unforeseen financial blows. For example, Tom, a solo parent, may sleep better knowing he has life insurance and a robust emergency fund to protect his child financially should anything happen to him.
To conduct this self-assessment, you’ll need to gather your financial information: income details, expenses, bank statements, debt statements, investment records, and insurance policies. You’ll examine each area honestly and thoroughly, asking yourself questions like:
- Do I have a clear understanding of my income and expenses?
- Am I saving consistently?
- Do my debts seem manageable, or are they causing me stress?
- Are my investments diversified and aligned with my financial goals?
- Do I have adequate financial protection in place?
By assessing these areas, you’ll gain a comprehensive understanding of your financial health. You’ll uncover potential problem areas, identify opportunities for improvement, and be better prepared to make informed decisions about your financial future.
Remember, this self-assessment is not a test; there are no grades, and it’s not a competition. It’s a tool to help you understand where you are financially so that you can determine where you want to go and how to get there.
Over the next few weeks, we’ll be exploring these areas in more depth and providing you with the tools and knowledge you need to improve your financial wellness. This journey may not always be easy, but remember that every step you take, no matter how small, brings you closer to your financial goals.
Thank you for your time, and I look forward to continuing this journey with you.