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The Relevance of Personal Financial Checkups in Today’s Financial Turmoil

Prepared by: Oral R. Dowell, CPA, CA; CEO - Dowell’s Advisory Services Inc.

If you are reading this article, you are probably either curious about its content or you have a need to address one of the most deficient parts of our educational lives to date – whether past or present. Either way we hope that it is of value to you.

As most of us are quite aware by now, each day we open the newspaper or listen to our TV or radio, we are apprehensive as to what next to expect on the world’s economic and financial landscape. In recent times, it has become so predictably negative that we sometimes wonder: ‘How will this affect the plans for me and my family’s future – financially?’; ‘I could lose my job tomorrow; then what?’; ‘Should I be concerned about my net worth and the value of my asset portfolio?’; ‘Who do I go to for help in assisting me to independently evaluate my financial position?’

These are just a few questions we should all be asking ourselves right now. Some of us believe that the effects are so geographically far away from us that it would take a considerable time, in economic terms, before it gets to our shores. How mis-informed those of us are about this critical situation. So, how do we address some of our perceived issues under these conditions? First of all we have to establish if we are serious about securing our financial health. It is similar to anyone who may ‘feel’ s/he is in good physical health and just want to, at least once per year, get a checkup from our doctor so that s/he is sure that all is well. We need to apply the same approach to our financial ‘health’ – get a checkup!

Here are a couple of steps you may wish to take for starters. You need to know the state of your finances to date. There are two analyses which are basic to your assessment. One is your net worth assessment and the other is your cash inflows and outflows to determine your net in/outflows. You must note that the net worth assessment involves the current valuation of your assets (the things you own) and your liabilities (the things you owe) to determine whether you own anything or owe anyone at the end of the day if you had to use all that you own to pay off all that you owe. This is called your net worth. The other, the cash flows involve your daily, weekly or monthly cash inflows which you work for or collect to use against your cash outflows you use to pay for your bills, like the water, electricity and rent. The outcome of these differences could be either a net inflow or outflow. That is, you either spent more than you made or collected or you were able to spend less.

It is very important to undergo these exercises, especially in today’s environment as identified above, as there could be reductions in the value of your investments, such as, shares, mutual funds, interest income percentages (savings accounts, money market accounts, etc.) and property valuations. Conversely, there could be an increase in variable interest rates on loans, like, mortgages, vehicles, leases, etc. or increases in government related revenue earning areas (taxes or levies), as we have seen in the recent budgetary and financial statement presentations. All of these have the impact of dampening the spending power of your cash in-hand as they reduce the quantity of what you can purchase. The next thing which you need to do is to take these recent assessments and project them, with the help of an independent professional financial planner, into the near future. This would give you at minimum a gauge as to how you and your family would need to modify your financial behaviours from here onwards.

In these times, conducting a financial checkup is more relevant than ever before as you would need to anticipate, wherever practically possible, your asset base for the future; your re-positioning in the event that there is a threat of job loss; your retirement planning options, etc. That is, when should I sell my shares or purchase new ones or should I re-organise my asset portfolio to include or swap out bonds for property investment. Should I, now that I am about to retire, convert some of my funds into government bonds and earn future fixed interest or should I just leave it alone. These and many more questions should form the basis of your new thinking based on all that is happening today. I wish you all the best in planning for your finances.