Anaesthetic, check. Scalpel, check. June 30 is fast approaching, so it’s time for your annual financial health check-up. We ask some pertinent questions that will help you determine whether you are likely to pass your next examination. 

‘Paging Doctor Cash, we have an emergency.’ Do you have an emergency fund?

It’s considered the 101 of personal finance: stash some cash away for the proverbial rainy day. Building an emergency kitty helps you deal with large bills or unplanned expenses. If you use your savings rather than borrowing money, you won’t have to go into debt to get the essentials working again.

So how much should you have in your emergency kitty? Most financial commentators suggest that you should have the equivalent of three to six months pay in your emergency fund. These funds should be held in a high interest account that is easily accessible.

Organise to have your employer or financial institution deposit this money automatically into your savings account each pay. This takes the temptation out of spending the money as you won't have to remember to put the money aside.

‘I will write you a referral to a retail therapy specialist.’ Are you spending beyond your means?

A bad day at work on payday can leave you with a good excuse to indulge in some ‘retail therapy’. But are you spending more than you make?

A key sign of financial health is living within your means. You have a limited amount of income to allocate between current consumption, investing for the future and perhaps paying for past consumption. If you keep spending more than you make, you end up limiting your choices in the future.

Understanding the difference between needs and wants helps to ensure you are living within your means. Take some time to critically look at your true needs versus your wants, and then create a plan to eliminate impulse spending. If you master this skill your finances are likely to be in much better shape.

‘Beeeeeeeeeep. Calling time of death at…’ Do you have an up-to-date will?
 
If you have a bank account, own property or have superannuation you should have a last will and testament. Whether you are single, married, divorced, kids or no kids—you need to have the right documentation in place so you know how your assets will be managed when you lose your life.

However, just having a will is not enough—you need to keep it up to date. You should review your will every few years to make sure any life changes are reflected, such as:

• marriage, or a de-facto relationship
• separation or divorce
• children or grandchildren, or
• bought, acquired or sold assets.  

‘Doctor, I’m having trouble sleeping at night.’ Are your assets protected?

Forget the sleeping pills; insurance might be a better cure for insomnia. Insurance helps cover the costs of unfortunate events, such as losing your life because of illness or disability, or your home in a fire. It protects the financial safety of you and your family, and your assets.

If you do have insurance, you need to determine whether it is enough. Most people underestimate the value of what they own and ‘underinsure’. According to the Australian Securities and Investments Commission (ASIC), 81% of Australians are underinsured.

Take the time to make sure your assets are properly insured, and re-evaluate this every few years or whenever a major life change occurs, such as marriage or an addition to the family.

‘Doctor, I just don't feel like myself.' Is your personal identity protected?

Most people are very careful with personal documents such as a birth certificate or driver's licence. The same strategy should apply to personal information, especially online.

Identity theft can range from a stranger using your credit card details illegally to make purchases, through to having your entire identity assumed and used to open bank accounts, take out loans, lodge tax returns and conduct other business illegally in your name.

The Australian Bankers’ Association, ASIC, and the Australian High Tech Crime Centre have joined together to develop the Protect Your Financial Identity website. The website provides information about how to protect your financial identity in everyday life and how you can minimise the damage if a problem occurs.

Understanding Money’s Financial Health Check Click here to conduct your own financial health check on the Federal Government’s, Understanding Money website. You can also read about a range of financial hints and tips.

Sources

• Protect Your Financial Identity website.
• Australian Securities and Investments Commission.  
• Understanding Money website, ‘Saving’.
• Understanding Money website, ‘Insurance’.
• Understanding Money website, ‘Protecting your money’.