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6-Step Effective Financial Health Check

5-Step Effective Financial Health Check

First Published: 23 August  2022

Updated: 1 December 2023


Do you find building up savings and managing debt a struggle despite earning a respectable salary?

It may be time to have a financial health check.

A financial health check is a meaningful way to monitor your financial life and identify areas where you may need to make changes.

If you don’t run a health check, you may never know which areas you can improve to strengthen your financial standing and ensure your wealth is growing, not shrinking.

So, if you’re wondering why your finances aren’t increasing the way you expect them to, then this 5-step effective financial health check is for you!

1. Know Your Income and Expenses

Understanding and managing your income and expenses is a crucial aspect of financial planning, especially regarding key aspects of personal finance.

Understanding your income and expenses is the foundation of a financial health check and sound financial management. This knowledge is integral to navigating the complexities of superannuation, retirement planning, savings, personal loans, taxes, and mortgages, ultimately contributing to a more secure and stable financial future.

Superannuation: By keeping track of your income, you can ensure that you are contributing adequately to your super fund. Understanding the contributions made by your employer, making voluntary contributions, and monitoring the performance of your superannuation investments are essential steps in securing a comfortable retirement.

Retirement: Tracking your income and expenses is directly tied to retirement planning. Knowing how much you earn and spend allows you to calculate how much you can afford to contribute to retirement savings and your investment portfolio. It’s important to plan for retirement early, taking into account the lifestyle you want to maintain post-retirement.

Savings: By identifying areas to cut back on spending, you can allocate more funds towards savings. Whether it’s creating an emergency fund, saving for a specific goal, or building a financial cushion, understanding your income and expenses is critical to effective savings.

Personal Loans: Maintaining a clear picture of your financial situation helps in evaluating your capacity to take on personal loans responsibly. It allows you to assess your ability to repay without compromising your financial stability. Being aware of your income and expenses assists in determining the amount you can comfortably borrow and repay.

Taxes: Keeping track of your income is crucial for managing your tax obligations. Understanding the taxable components of your income and eligible deductions can help you optimise your tax position. This is particularly relevant in Australia, where the tax system includes various deductions and incentives.

Mortgages: When considering a mortgage, knowing your income and expenses is fundamental in determining your borrowing capacity. Lenders assess your ability to make mortgage repayments based on your financial situation. Tracking your income and expenses helps you prepare for homeownership by ensuring that you can comfortably meet mortgage obligations, particularly if interest rates increased.

How to Keep Track of Income and Expenses

There are several methods and tools available to help you stay organised and in control of your finances. Here’s a guide on how to keep track of income and expenses:

Budgeting: Create a budget that outlines your monthly income and fixed expenses (e.g., rent, utilities, insurance coverage). Allocate a portion of your income to different categories such as groceries, transportation, entertainment, savings, and debt repayment. Create a separate account for expenses, debt repayment, and savings.

Use Financial Apps: There are various mobile apps and online tools designed to help track income and expenses. These apps often link to your bank accounts and credit cards, automatically categorise transactions and provide insights into your spending patterns.

Bank Statements: Examine your bank account and credit card statements regularly to understand where your money is going. Check for any unauthorised transactions and reconcile your statements with your budget.

Receipts and Documentation: Keep receipts for all purchases, especially those that are tax-deductible. This is crucial for accurately claiming deductions during tax time. Maintain a system for organising receipts, whether it’s a physical file or a digital folder.

Track Cash Spending: If you use cash for certain expenses, make a habit of recording these transactions. This can be done manually or by using a mobile app that allows you to input cash transactions.

Regular Reviews: Schedule regular reviews of your budget and financial transactions. This could be weekly, bi-weekly, or monthly, depending on your preferences and financial situation. Assess your spending against your budget and make adjustments as needed.

By adopting these practices and using available tools, you can stay on top of your finances and make informed decisions about your income, expenses, and overall financial well-being.

2. Make a Budget

Quick question: Do you have a budget?

A recent study reports that more than 25% of Australians do not have any savings in their bank accounts, while 68.5% report a debt burden. It’s a clear indication of not having a personal budget.

In personal financial planning, making a budget is a foundational step towards achieving financial security and well-being. Creating and adhering to a budget is more than just tracking income and expenses; it serves as a comprehensive tool to empower individuals to make informed decisions about their finances.

Why is it important to have a personal budget?

Financial Stability: A budget helps you track your expenses and ensures that your spending is in check, making it easier to pay bills on time and build an emergency fund for a rainy day.

Goal Setting: A budget allows you to set long-term financial goals and work towards them by allocating funds accordingly.

Control Over Your Finances: Budgeting gives you control over your spending and saving, allowing you to make intentional decisions about your money.

Emergency Preparedness: A budget helps you plan and prepare for unexpected costs, ensuring that you have money set aside for emergencies.

Savings: By tracking your expenses and having a better understanding of your financial situation, a budget can help you identify areas where you can cut costs and allocate more money to savings.

Debt Management: Budgeting allows you to determine how much debt you can take on and plan for repayments, helping you avoid accumulating excessive debt.

Financial Awareness: A budget provides you with a clearer understanding of your income, expenses, and financial needs, allowing you to make informed decisions about your money.

How to Create a Budget?

  1. List your monthly income and expenses.
  2. Categorise your expenses into necessary and non-essential items.
  3. Allocate a specific amount of money to each category.
  4. Set aside money for savings and emergencies.
  5. Monitor your progress and adjust your budget as needed to ensure that you are staying on track with your financial goals.

By making and sticking to a personal budget, you can improve your financial stability, achieve your goals, and gain control over your finances.

Making sure that you are living within your means is an integral part of financial management. So you have to be realistic with your budget.

Creating realistic budget scenarios for various situations will assist you in planning ahead, managing risks, and making better decisions. Here’s an example scenario:

Suppose you are a recent university graduate who has just started a job that pays $48,000 per year. You are moving into your own one-bedroom apartment in the city and have budgeted for the following monthly expenses:

  • Rent: $960
  • Utilities: $80
  • Food: $400
  • Mobile phone: $100
  • Public transport expenses: $120
  • Dog food and vet bills: $100

Using this information, you can create a budget scenario that projects your income and expenses based on certain assumptions or variables. You can use budget scenarios to compare different results, to test your assumptions, and to see how changes affect things.

For example, you could create a base case scenario that assumes your income and expenses will remain the same for the next year. You could also create a best-case scenario that assumes you will receive a raise or promotion, and a worst-case scenario that assumes you will lose your job or face unexpected expenses.

By analysing and comparing these budget scenarios, you can identify areas where you may be able to save money or make adjustments to improve your financial situation. For instance, you may find that you can reduce your spending on dining out or entertainment to save money, or that you need to increase your income to achieve financial well-being.

Overall, creating realistic budget scenarios can help you make informed financial decisions and work towards your financial goals more effectively.

3. Set Financial Goals

Setting personal financial goals is essential for providing direction, staying focused and disciplined, ensuring efficient planning, maintaining accountability, prioritising spending, achieving financial security and freedom, and creating a sense of achievement.

The importance of setting financial goals

Setting financial goals shapes your approach to superannuation, retirement, savings, personal loans, taxes, and mortgages. By articulating clear objectives, you not only make informed decisions about your financial priorities but also stay motivated on the path to achieving your long-term financial aspirations.

Superannuation: Establishing clear financial goals is instrumental in optimising your superannuation strategy. Whether your goal is to build a substantial retirement nest egg or to retire early, having a specific target allows you to align your contributions and investment choices with your long-term objectives.

Retirement: Financial goals play a crucial role in retirement planning. Setting a target retirement date, retirement income and lifestyle helps in determining the necessary savings and investment strategies. This is particularly important in Australia, where individuals are primarily responsible for managing their retirement funds through superannuation.

Savings: Setting specific savings goals provides a roadmap for allocating funds to different priorities, whether it’s an emergency fund, a deposit for a house, or an overseas holiday. This goal-oriented approach ensures that savings are purposeful and contribute to your overall financial well-being.

Personal Loans: Financial goals act as a guide when considering personal loans. Whether it’s for education, a major purchase, or debt consolidation, having defined objectives helps you assess the amount you need to borrow and the repayment terms. This ensures that personal loans are used strategically and do not compromise your long-term financial goals.

Taxes: Clear financial goals can influence your tax planning strategy. For instance, if one of your goals is to maximise tax deductions, you may focus on contributions to deductible expenses like education or investment properties. Understanding your financial objectives helps you navigate the Australian tax system effectively.

Mortgages: When setting financial goals, homeownership is often a significant objective. Whether it’s saving for a deposit or paying off the mortgage early, having a clear vision allows you to structure your finances to achieve homeownership while considering the Australian property market dynamics.

How to Set Financial Goals

Your financial goals could be as practical as getting a house, building an investment portfolio, or paying off your debt, or they could be more fun, like going on holiday or moving to a beach-side suburb.

Financial goals are all the things you want to have and experience.

Setting personal financial goals is essential for achieving financial success and improving your overall financial well-being. Here’s a guide on how to set financial goals:

How to set financial goals

Assess Your Current Financial Situation: Begin by evaluating your current financial status, including income, expenses, debts, and savings. Understanding where you stand financially will provide a realistic foundation for setting achievable goals.

Define Short-Term and Long-Term Goals: Differentiate between short-term and long-term financial goals. Short-term goals may include building an emergency fund, while long-term goals could involve saving for a home, education, or retirement.

Be Specific and Quantifiable: Clearly define your goals with specific and measurable targets. Instead of a vague goal like “save more money,” specify an amount, such as “save $5,000 for an emergency fund by the end of the year.”

Prioritise Your Goals: Rank your goals in order of priority. Consider factors such as urgency, importance, and impact on your overall financial well-being. This will help you focus on what matters most.

Consider the Australian Economic Landscape: Be aware of economic factors in Australia that may impact your goals, such as inflation rates, interest rates, and housing market trends. Understanding these factors can help you make realistic and informed decisions.

Align Goals with Life Stages: Consider your life stage and align your goals accordingly. Whether you’re starting your career, raising a family, or nearing retirement, your financial goals should reflect your current life circumstances.

Factor in Superannuation and Retirement: Given the significance of superannuation in Australia, incorporate retirement planning into your financial goals. Set targets for contributions to your super fund and establish a clear vision for your retirement lifestyle.

Account for Taxes and Deductions: Consider the impact of taxes on your financial goals. Be aware of available deductions and incentives, such as those related to education, health, and homeownership, to optimise your financial strategy.

Create an Emergency Fund: Make building an emergency fund one of your initial goals. Having a financial buffer can protect you from unexpected expenses and provide peace of mind.

Regularly Review and Adjust Goals: Your financial situation and priorities may change over time. Regularly review your goals and make adjustments as needed. This flexibility ensures that your goals remain relevant and achievable.

Seek Professional Advice: Consider consulting with a financial adviser. They can provide personalised guidance based on your individual circumstances and help you develop a realistic and effective financial plan.

Use SMART Criteria: Apply the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound) to each goal. This ensures that your goals are well-defined, realistic, and have a clear timeline for completion.

By following these steps and tailoring them to your specific circumstances, you can set financial goals that are achievable and aligned with your aspirations in the Australian financial landscape.

4. Check Your Credit Report

Your credit report is a record of your financial history and is used by lenders to assess your creditworthiness. Checking your credit report regularly is an excellent way to keep up with your finances and ensure that your information is accurate.

Why checking your credit report is important

Creditworthiness Assessment: In Australia, lenders use credit reports to assess an individual’s creditworthiness when applying for loans, credit cards, or mortgages. Regularly checking your credit report allows you to be aware of how lenders perceive your financial reliability.

Loan Approval and Borrowing Capacity: A clean and accurate credit report enhances your chances of loan approval. When planning major financial undertakings, such as buying a home or starting a business, having a solid credit history is vital. Regular checks ensure that your credit report reflects positively on your borrowing capacity.

Financial Planning Alignment: Understanding the information in your credit report helps align your financial planning with your credit goals. If you have plans to take on significant debts, such as a mortgage or business loan, monitoring your credit report allows you to prepare and make strategic decisions to enhance your creditworthiness.

Interest Rates and Terms: Your credit score, derived from the information in your credit report, plays a significant role in determining the interest rates and terms offered by lenders. A higher credit score often translates to more favourable terms. Regularly checking your credit report allows you to work towards improving your credit score and, consequently, obtaining better financial deals.

Building and Maintaining Good Credit: Consistent monitoring of your credit report supports the ongoing effort to build and maintain good credit. This is especially important in Australia, where responsible credit management is valued and contributes to overall financial well-being.

Accuracy of Information: Your credit report is a comprehensive record of your financial history, including credit accounts, payment history, and outstanding debts. Regularly reviewing this report ensures the accuracy of the information presented. Inaccuracies or errors can be corrected promptly, preventing potential issues when applying for credit.

Identification of Fraudulent Activity: Monitoring your credit report helps in identifying any suspicious or fraudulent activity. Instances of identity theft or unauthorised credit applications can be detected early, allowing you to take swift action to rectify the situation and protect your financial identity.

How to Check Your Credit Score

You can check their credit report through various credit reporting agencies such as Equifax, Experian, and illion.

Equifax: Equifax offers individuals the ability to order their credit report online, by phone, or by mail. They provide a comprehensive credit report that includes credit rating, key factors impacting the credit rating, credit products held, past credit applications, repayment history, and overdue debts. Equifax also allows individuals to check if the information in their credit report is accurate and offers free investigation of any inaccuracies.

Additionally, individuals have the right to obtain a free copy of their credit file from Equifax once every three months, or if their credit application was declined, or if they have lodged a correction request and it has been corrected.

Experian: Experian is another credit reporting agency in Australia that provides access to credit reports. Individuals can request their credit report from Experian by contacting them directly.

illion: Similarly, individuals can request a copy of their credit report from illion by contacting them directly.

Regularly checking your credit report not only supports short-term financial goals but also contributes to long-term financial stability and success.

5. Seek Professional Advice

If you are struggling to keep up with your finances or have complex financial needs, it may be worth seeking professional advice. A financial adviser can help you assess your financial situation and improve your financial well-being.

The guidance of a financial adviser can provide valuable insights, strategic planning, and tailored solutions to address individual financial challenges and goals.

The importance of  professional financial advice

Comprehensive Financial Assessment: A financial adviser conducts a thorough examination of your current financial situation, taking into account your cash flow, living expenses, assets, liabilities, overall financial life, and goals. This comprehensive assessment forms the basis for informed decision-making and personalised financial planning.

Customised Financial Planning: Based on the assessment, a financial adviser can create a customised financial plan tailored to your specific needs and objectives. This plan may encompass budgeting, savings strategies, investment recommendations, retirement planning, insurance coverage (such as life insurance and income protection), and debt management, aligning with the Australian financial landscape and regulatory environment.

Navigating Complex Financial Needs: For individuals facing complex financial scenarios, such as tax considerations, estate planning, or intricate investment portfolios, seeking professional advice is particularly beneficial. Financial advisers possess the expertise to navigate these complexities and provide strategic solutions that align with Australian financial regulations.

Debt Management Strategies: If you are grappling with debt, a financial adviser can devise effective debt management strategies. This includes assessing the feasibility of debt consolidation, negotiating with creditors, and establishing a plan to reduce and manage debt over time.

Optimising Superannuation and Retirement Planning: In Australia, where superannuation is a key element of retirement planning, a financial adviser can optimise your superannuation contributions and investment strategies. This ensures that you are well-positioned for a financially secure retirement.

Investment Guidance: Financial advisers provide investment guidance based on your risk tolerance, financial goals, time frames, and market conditions. This is essential for making informed investment decisions, whether you are considering property, shares, or other investment vehicles prevalent in the Australian market.

Keeping Up with Regulatory Changes: The Australian financial landscape is subject to regulatory changes. Financial advisers stay abreast of these changes, ensuring that your financial plan remains compliant and optimised within the evolving regulatory environment.

Continuous Monitoring and Adjustments: Seeking professional advice establishes an ongoing relationship where your financial situation is continuously monitored. Financial advisers can make adjustments to your plan as your circumstances change, providing flexibility and adaptability in response to life events and economic shifts.

Where to Get Advice?

Financial advisers in Australia must have an Australian Financial Services License (AFSL), ensuring that they meet the necessary regulatory standards and operate in the best interests of their clients.

An AFSL is a licence given by the Australian Securities and Investments Commission (ASIC) that allows people or companies to legally carry on a financial services business. This includes selling, advising or dealing in financial products. Only deal with licensed businesses.

ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards. The ASIC Connect Professional Registers will tell you if the company or person holds an AFSL.

The importance of regular financial check-ups

Regular personal financial check-ups in Australia are essential for staying proactive and responsive to economic changes, regulatory updates, and individual life events.

Financial check-ups help you optimise your financial strategies, address challenges promptly, and work towards achieving your financial goals in a dynamic and evolving financial landscape.

Key aspects include adapting to economic conditions, optimising superannuation, monitoring and improving credit scores, staying informed about regulatory changes, identifying and resolving issues early, optimising tax strategies, aligning financial goals, reviewing and adjusting investments, planning for major life events, and cultivating financial awareness and discipline.

Overall, these check-ups contribute to financial well-being and long-term success in managing personal finances.

Resources and Tools

You can use free financial calculators and tools such as ASIC MoneySmart, MyMoneySorted, as well as financial advisers for a regular personal financial health check. These resources and tools can help you make better financial decisions, take control of your money, and boost your financial status.

ASIC MoneySmart: ASIC MoneySmart is a helpful website that provides calculators and tips to help individuals make better financial decisions. It offers a range of tools, including budget planners, savings goals calculators, and superannuation calculators.

MyMoneySorted: MyMoneySorted offers free financial calculators, such as a budget planner, expense planner, and deposit planner, as well as superannuation, loans and tax calculators.

5-Step Effective Financial Health Check Summary

Conducting the 5-step effective financial health check is crucial if you seek to enhance your financial well-being.

Regular financial check-ups, supported by resources and tools, provide a snapshot of financial positions, contribute to financial literacy and well-being, assess financial performance, aid in financial planning and control, and ultimately empower you to make informed financial decisions and achieve financial success.

Embracing these steps and practices is essential for anyone aiming to strengthen their financial standing, achieve financial goals, and secure a prosperous financial future.

Ready to Improve Your Financial Health?

While managing your finances can seem complicated and time-consuming, it doesn’t have to be that way with knowledge and expert guidance. Whether you’re young or old, it’s never too late to get your financial ducks in a row.

Need financial advice? Coastal Advice Group is a team of experienced financial advisers who are here to help you tailor your financial plan and get you on your path to financial freedom. Our financial advice team can help you establish direction for your finances and investments to achieve your financial and lifestyle goals.

Call us or book online to secure your complimentary consultation today!





DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
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