I visited my doctor recently for a routine physical. I’m entitled to a physical once a year through my insurance, so I make sure to take advantage of this benefit. When I visit the doctor’s office, he usually asks me if I am experiencing any particular ailments or symptoms, to which I usually reply “Not really, I feel pretty healthy.” Nevertheless, my doctor checks my blood pressure, temperature, heart rate, weight, and other vital signs. I’m glad he does this, because while I may FEEL fine, the reality is that there may be something going on inside of me that I am not aware of.
In the same way, when it comes to your financial health, is there something going on that you may NOT be aware of? More and more employers are offering wellness programs to help employees develop a healthy lifestyle, and these programs typically integrate a financial wellness component. One of the most important parts of a financial wellness program is the financial wellness assessment.
Like the physical checkup at the doctor’s office, a financial wellness assessment does a diagnostic of your financial health to see if there are any potential problems lying under the surface, yet many employees only take an assessment once or fail to take an assessment at all. Just as you should visit your doctor once a year to see how you are doing, you should also take an assessment once a year to see how you are doing financially. Here are the areas typically reviewed during a financial assessment, along with tips on how to improve your financial health in each area:
To be healthy in the area of cash management means you are paying your bills on time, you have money set aside in case of an emergency, and you have control over your debt. Since your health in other aspects of financial planning typically stem from good cash management, this is usually the most critical area to be healthy in (akin to exercise and eating healthy). To improve your health in cash management, you will want to make sure you have a working budget, and if you have high-interest debt or more debt than you would like, you should develop a debt-repayment plan.
Gauging one’s health in the area of retirement planning usually begins with running a retirement plan projection, but according to our most research on retirement preparedness, most employees have not taken this simple first step. If you have not done so already, use this retirement plan estimator to see if you are on track to replace a sufficient amount of income—most experts suggest 80%—in order to enjoy a comfortable retirement lifestyle. If you are on track, keep up the good work. If not, use this resource to get on track.
Not everyone will be concerned about education planning, but if there is a future scholar in your midst, it will help if you are healthy in this area. Like retirement planning, good education planning begins with a projection of costs and savings. The CollegeBoard website offers resources to help parents and students to estimate the cost of education, as well as tools & calculators to help you estimate how much you need to save in order to reach your goals. You can also learn more about federal financial aid from the FAFSA website. For an overview of things you can do to improve your education planning health, see this resource guide.
Investing is to financial planning what food is to physical wellness: sometimes we eat based on what we feel like eating regardless of whether or not it is good for us. In the same way, we sometimes invest based on our emotions rather than using investment discipline. To improve your financial health in this area, start with learning some investment basics. To apply these basics, take a risk tolerance assessment and develop an appropriate asset allocation based on your risk tolerance (think of a well-balanced diet). Then be sure to re-balance your investment portfolios every so often to make sure you maintain your asset allocation.
Insurance planning is like taking vitamins and can help reduce or avoid major financial catastrophes. There are many different types of insurance, so to improve your health in this area, start with an assessment of your needs. For example, to determine whether or not you carry enough life insurance, you can use this life insurance needs worksheet. To determine your need for other types of insurance, such as disability, long-term care, auto, home, and umbrella coverage, you may need to speak with a qualified insurance representative.
At some point, we may be unable to make decisions regarding our physical and financial wellness, so it is important to make arrangements for both ahead of time. For your physical health, you will want to make sure you have healthcare directives in place so that loved ones know what your wishes are, along with a healthcare power of attorney that designates someone who can share your wishes with your healthcare providers. For your financial health, you will want to have a will, a financial power of attorney, and possibly a trust. Check with your employer to see if they offer a group legal plan with access to these types of documents. Online websites like nolo.com and legalzoom.com offer estate planning documents at low cost, or if your situation is somewhat complicated, consider working with an estate-planning professional.
I’m not sure how to equate tax planning to your physical health, other than to say why pay the doctor or in this case, the IRS, more than you have to? Healthy tax planning includes adjusting W-4 allowances periodically to avoid having too much or too little income tax withheld from your paycheck. It also includes knowing what tax credits, exemptions, and deductions you are eligible to claim and which marginal tax bracket you are in. Use this guide to improve your tax-planning health.
Ask your employer if they offer a financial wellness assessment as part of a financial wellness program. If they do, be sure to take advantage of it. Like my trip to the doctor’s office, you may not feel as though there is anything wrong, but if there is, now is the time to find out so that you can do something about it.