6 practical steps to give yourself an end-of-year financial health check

Category: Australia & News

2022 has been a tumultuous year from an economic perspective as the Australian economy has learnt to deal with inflation and monetary pressures from working through the pandemic.

The rate of inflation reached 7.3% in October with Forbes confirming this was the highest rate since 1990. 

At the start of November, the Reserve Bank of Australia raised interest rates to 2.85%, while warning that they could rise still further in order to bring down inflation. 

In his first budget speech, Treasurer Jim Chalmers warned that cost of living challenges will be around for some time.

The current economic headwinds are creating financial challenges for many people and households. 

In view of this, the period between Christmas and the New Year could well be the ideal time to shut yourself away for an hour or two and review your finances. You’ll get valuable peace of mind knowing everything is up to date and give yourself a clear view of your financial position. 

Follow these six steps to give yourself a financial health check. 

1. Get a high-level overview of your income and expenditure

Having a clear idea of the state of your finances is invaluable, as it can really help you manage both your long and short-term financial situations. 

If you haven’t already done so, compile a straightforward spreadsheet that lists all your monthly expenditure and income.

You’ll only need a recent bank statement to get started, as that will give you all recent financial transactions, including direct debit mandates and standing order payments. 

Then list all your debts, including credit cards and other borrowings, and how much you’re paying to service them.

It’s also worth noting planned upcoming expenditure, such as holidays or a new car. 

2. Get up-to-date valuations of your super funds

Having started your spreadsheet, the next step is to populate it with your other financial arrangements, starting with your super fund(s).

Make a list of them and look up the latest fund values. 

Also make a note of where your money is being invested in each case and check you’re still happy with your investment choices. 

Then work out the amount you’re paying in each month and, if necessary, see if there’s any scope to make an additional discretionary contribution to give your fund a boost. 

3. Get current values of your other savings and investments

As well as reviewing your super funds, check the current value of your other savings and investments and see how much money you’re setting aside each month. 

The positive effect of compounding means that increasing the amount you save annually can make a significant difference to your future prosperity. So, resolve to increase your saving and investment contributions each year if you can. 

If you haven’t done so already, set up direct debit mandates for your investments, so you’re making regular contributions each month, rather than simply adding money sporadically. 

One positive outcome of the rise in interest rates is that you could get a better return on your savings. So, shop around and see if you can get an improved interest rate.

As with your pensions, also check your investment details, and make sure that you’re comfortable with where you’re invested and the level of investment risk you’re exposed to. 

4. Confirm you have enough life cover and income protection in place

Death or serious illness can be difficult issues to have to think about. However, a key part of your financial health check should be to ensure your family will be able to manage financially if you’re unable to provide for them. 

Start by ensuring that the amount of life cover you have is sufficient. At the very least it should be enough to clear any outstanding debts you may have. 

Ideally, it should also provide enough of a lump sum to give your family an income to live comfortably for a certain period. 

Also review your income protection insurance arrangements. The income and expenditure calculations you completed under step one will give you a clear idea of the level of income you should be protecting. 

5. Take steps to ensure you’re prepared for potential emergencies

As part of your financial health check, make sure you’re prepared for any unforeseen events. 

Make sure you have an emergency fund in place that’s instantly accessible and can be drawn from in the event of a domestic crisis. This will prevent you from having to resort to expensive short-term borrowing. 

As a rule of thumb, this should be between three and six-months’ household expenses. Again, your income and expenditure spreadsheet will give you an idea of how much you should have in your emergency fund. 

6. Commit to dealing with financial issues as they arise

Given the time of year, there are plenty of resolutions you could make from a financial viewpoint. You may well have thought of some as a result of reading this article.

To boil it all down to one, a top priority should be to resolve to deal with financial issues as they arise and avoid the temptation to put them off. For example, paying off your credit card in full monthly. This way you will reduce overall interest costs and provide more available funds for other sound purposes.

Doing so actually makes sound financial sense as well as being good practice. Keeping track of your finances makes it far easier to deal with any unexpected issues when they arise. 

Get in touch

If you need some help or advice regarding any of the financial issues you’ve read about here, please get in touch with us. 

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. 

Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.