Diagnose and Improve Your Financial Health: A 10-Item Checklist

By Craig Ford on 5 January 2011 (Updated 4 June 2014) 2 comments
Photo: Johnrob

Most people usually want to do one of three things every January: They want to lose weight, improve finances, or quit a bad habit. Since this is a personal finance blog, I guess we ought to focus on the goal to improve your finances.

The problem with trying to improve your finances is that it is awfully broad. Where do you need to be focusing your time, effort, and attention? J.D. Roth suggests you focus on one task. That’s probably a good idea, but what one task is worthy of your intense focus?

I’m going to put 10 financial tasks in order. It’s just like a triage list. If you answer "no" to any of the following items, don’t move onto the next until you can answer the question with a "yes."

Think about it: A guy comes into the hospital with a nail in his leg and a runny nose. Which do you treat first? You address the most serious issue first, and then once that problem is resolved, you address the second issue.

Insert your own number: Are you regularly giving to your church or a favorite charity?

Wow. This was an extremely hard one to place on the list. Giving is a very important part of being financially healthy. But it’s more, too; it is part of being a good citizen, and it also significantly impacts your spiritual life. Personally, I recommend that people start giving as soon as they try to improve their finances. Developing this healthy financial habit early makes it easier to continue. However, I know not everyone will agree with putting it as number one, so I’ll let you plug it in as you see fit.

1. Do you have, keep, and maintain a budget?

Since I wrote a book about budgeting, I tend to be one of those geeks who thinks budgeting is one of the most important financial habits. If you don’t know where your money is going, and you don’t know how much disposable income you have, it will be very hard to create any type of a decent financial plan. If you don’t have a budget, then you should make it your goal to learn how to budget and start right away.  In the process, you’ll want to be sure you have the right budgeting tools. Find the best personal finance software that matches with your needs and goals.

2. Could you get your hands on $1,000 in 48 hours?

Financial management requires that you cleverly balance offense and defense. This is a defensive move. Since you don’t know what could go wrong this year, you want to be prepared by saving enough money for a little emergency fund to handle any hiccups along the way. Use your budget to help you save enough money to get $1,000 of spare cash sitting in your bank account.

3. Do you have appropriate levels of the right kinds of insurance?

Review your health, auto, life, and disability plans. Do you have insurance? Do you have adequate amounts? Unfortunately, it would take an entire blog post to help you determine adequate levels and types of insurance. Here’s an article that helps you evaluate your insurance needs. At the very least, be sure you have minimal insurance in place.

4. Do you have any credit card debt or other non-secure debt? Do you have a car payment?

All right, I’m going to cheat on my list of ten things and turn this into a two-part number:

4a. You can’t run until you cut off whatever is weighing you down. We all know that trying to get financially healthy with credit card debt is tough. That’s because the math of credit card interest works against you. Thus, your next step (and yes, it could take years) is to pay off your credit card debt and other high-interest debt that you have.

4b. A car payment is another lead weight that holds people back. Once you’ve taken care of credit card debt, you should have some extra dollars available to help you take care of that nasty car payment. What’s wrong with a car payment? It sucks up way too much of your income. Get rid of it.

5. Do you have three-to-six months of expenses in your bank account?

Now it’s time to adjust to debt-free living.

This money is typically called an emergency fund. You never know when you might lose a job or have a serious medical condition. This is another defensive move, but it is very important.

6.  Have you started investing for retirement?

Once you have paid off your debts, start seriously focusing on investing. Learning how to start investing will be your next major stage. This will be a stage when there are lots of questions — what is the best retirement option, how much should you be saving, and what type of investments are best?

7. Are you saving anything for your kids’ college?

As the cost of college continues to increase, you’ll want to be sure that you are setting savings aside for their future education. The amount you save should increase the older your children are when you start saving. The three major options are 529 plans, Educational ESAs, and the Roth IRA for college savings. You can check out this helpful chart to decide which is best.

8. Do you have a home mortgage?

There are a lot of financial and non-financial incentives for paying off your mortgage. I tend to focus on the non-financial elements and do recommend that people pay off their homes early.

9. Do you have big goals for how you can change the world through generosity?

Earning money, saving money, and investing money gets old. Why not do something truly meaningful and spectacular with money? Set a goal or plan to do something significant as you continue to give, earn, save, and invest. I like this plan to give away millions.

Now that you’ve got the skeleton of the pieces you need to put together for financial health, it’s time to get out there and start working vigorously on completing as much of the checklist as possible before another year slips past.

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Guest's picture

This is sort of a nit-picky comment because I really like the overall list, but at the top you say, 'If you answer "no" to any of the following items, don’t move onto the next until you can answer the question with a "yes."' However, some of the questions are written so that the move-on answer is actually "no" instead of "yes," like #4. I can answer "no" to both parts so I should move on... whereas a "yes" answer there needs to stay and fix things.

Guest's picture

Nice checklist. I suggested most of the things on your list in my blog post on personal finance, but did it in the form of a didactic 'to do' list, rather than thought provoking questions. Liked this format a lot :-)