Sitting down to review personal finances can be an extremely vulnerable task — one that we often push off as long as possible, simply because it’s overwhelming. There is an emotional connection we carry between how much (or how little) we currently have.
Manisha Thakor, MBA, CPA and CFP is a Harvard Business School graduate and life-long financial wellness advisor. Through her firm MoneyZen, she empowers women to take charge of their financial picture, building a positive relationship with money to make confident, informed decisions.
Here is her 5-Step Guide to a financial check-in:
1. Review your 2021 cash flow
Cash flow is simply money out versus money in. Money in accounts for all hourly/salary wages, cash gifts received and check deposits. Money out accounts for all debit and credit purchases, checks written and ATM withdrawals for your household.
Healthy spending should follow a 50/30/20 model:
- 50% of income (after taxes) should go towards NEEDS:
Housing, food, childcare, utilities, transportation and loans
- 30% should go towards WANTS:
Travel, restaurants, clothing, beauty, activities
- 20% should go towards SAVINGS:
Long-term, short-term, Roth IRA or 401K (mix and match)
If your cash flow is in the negative – it’s OK. Ask yourself where changes can be made, and actively work to decrease expenses for 2022. Review interest fees, recurring memberships and annual subscription charges.
2. Make a list of your assets + money you owe
Subtract your liabilities from your assets — that is your net worth. Over time, you want this number to grow. If this number is shrinking or remaining stagnant, it is time to reevaluate your assets.
3. Look at your investments (if you have some)
What is appreciating? What isn’t? Are you taking on too much debt? Are your assets deceasing in value? Is it time to meet with a financial planner for more guidance?
4. Check your credit score
Your credit score is the ultimate marker of financial health, and should be checked every 6 months. Visit these recommended sites to learn more:
Apps like CreditKarma and Experian are great tools to keep on your phone in the interim. In the event your credit card details are compromised, keep watch over your credit score to ensure there are no fraudulent hits or loan applications.
5. Reflect on any major changes in your life
Has anything happened that would shift your goals or future plans? Are you looking forward to a big purchase in the future? If so, make sure your financial aims and guidelines are in sync.