How to administer Financial First Aid – in 5 easy steps

While you are no stranger to triaging emergency situations and delivering first aid to those in need, chances are you were never really taught how to apply the same concept to looking after your finances. A demanding job can often mean that our life (and our finances) are often left on autopilot, which can sometimes be to our own detriment.

This is why it is important to get in the habit of scheduling an annual financial check in in your calendar – the better you look after your money, the better it will look after you! Here are a few simple steps you can take to make sure your finances are in order, and what you can do to administer first aid if required.

Step 1: Check Your Cash Flow

Regardless of what financial or lifestyle goals you have, you will struggle to achieve them without a healthy cash flow. To check how things are going you can put together a detailed budget to see whether your expenses outstrip your income. Or, if you are short on time and not a fan of crunching numbers, you can simply take a look at your bank balance and credit card statement. Is your credit card rarely used or consistently paid off in full? If not, it is likely that your cash flow is in the red. What about your bank account the day before payday? Is there a healthy balance remaining or is it approaching zero?

Score:

• Negative or zero net cash flow each pay –  0 points
• Less than $500 surplus cash each month – 1 point
• More than $500 surplus cash each month – 2 points

Step 2: Check Your Savings

Next, take a look at how your emergency savings are tracking. When it comes to how much you need to set aside in your emergency savings fund, three months’ worth of living expenses is a good goal to aim for.

Ultimately, how much you need will depend on your personal circumstances. For example, you may need to save more if you work in a role where it could take time to find a replacement job, or if you don’t have any income protection insurance.

Score:

• No savings – 0 points
• Less than one month of living expenses saved – 1 point
• More than one month of living expenses saved – 2 points

Step 3: Check Your Personal Insurances

Speaking of insurance, there is one asset most of us tend to forget to insure and that is – ourselves. When you stop to think about it, your ability to earn an income is your greatest asset, and one that is definitely worth protecting.

This is why a range of life insurance policies exist to help you stay financially afloat if you are diagnosed with a serious medical condition and are unable to work – temporarily or permanently.

These policies are Life, Total and Permanent Disability, Trauma and Income Protection Insurance. As a starting point, contact your employer and super fund to find out what cover you already have in place, and see your financial adviser to check whether the level of cover you have is sufficient to meet your needs.

Score:

• I don’t have any form of life insurance – 0 points
• I have some insurance in super, but not sure what – 1 point
• I have adequate life, TPD, trauma and income protection – 2 points

Step 4: Check Your Super

Now that you have had a look at your immediate cash flow and savings needs, it is time to set our sights on the future. How healthy your super balance is likely to be by the time you retire will be affected not just by how it is invested and the fees you are paying, but also by whether or not you are working and making additional contributions.

Score:

• Not earning any super – 0 points
• I receive super through employment (SGC) OR I make voluntary contributions  – 1 point
• I receive SGC AND I make voluntary contributions – 2 points

Step 5: Check Your Important Documents

Last but not least, it is time to make sure that all our important documents are up to date. Having a valid will in place can make a stressful situation that little bit easier for your family to handle, should something happen to you.

Be careful of doing it yourself without legal advice, as will kits and DYI wills can often be ambiguous, incorrectly completed or witnessed, and can make it possible for someone to challenge the will.

It also helps to put in place an Enduring Power of Attorney and Enduring Power of Guardianship (also known as Medical Power of Attorney). These documents will enable someone you trust to make financial and medical decisions on your behalf in case you are unable to do so yourself (for example, due to being in a coma).

Score:

• Don’t have a will or power of attorney in place – 0 points
• Have a will but no POA or will isn’t current – 1 point
• Have a will and POA and review it regularly – 2 points

Step 6 (Optional): Check Your Mortgage

If you are a homeowner, remember to include the state of your mortgage in your financial health check. Your home is likely to be not just your biggest asset, but also your largest debt. How effectively you manage it, can make a significant difference to your financial wellbeing. Consider, are you paying more than the minimum repayments? When is the last time you checked your interest rate? Are you on track to be debt-free by the time you retire?

Score:

• I make interest-only repayments on my mortgage – 0 points
• I make the minimum principal and interest repayments – 1 point
• I pay more than the minimum required, and regularly review my interest rate – 2 points

Your Results

Now that you have reviewed each area of your finances, it is time to tally up your points and see what action you need to take. If you are a home-owner, adjust the below range by an extra two points (0-6; 7-11; 12)

0-4 Points – Get back to basics
Start by taking a closer look at your income and expenses and brainstorm ways to boost your surplus cash each month. Next, direct your spare cash towards boosting your savings, paying down personal debt and getting the essentials sorted like your will and insurances.

5-9 Points – Room for improvement
You are plodding along OK, but there is room for improvement. Take a look at your backup plan and make sure you have sufficient emergency savings. Then, set some time to review and update the important paperwork like your will, insurances and superannuation.

10 points – Ready to level up!
Great work! You have all the essentials taken care of. Schedule an annual reminder to review your important documents and make sure they remain up to date. Now that the essentials are taken care of, it’s time to level up! If you don’t have any specific goals, you can begin by writing out your most important values and rating your satisfaction with how you are going. Then list 3 goals that are aligned with those values and attach a dollar figure to them. Once you have that number, list the goals in order of priority and break the dollar figure down into a weekly amount that you can transfer each pay.

Natasha Janssens is a Certified Money Coach (CMC)® and founder of Women with Cents. She is an award winning finance expert with a passion for supporting women to transform their relationship with money. Click the link below to find out more.