6 Steps to Financial Health
Posted on May 21 2015
As a Doctor you spend much of your waking hours dealing with the health of others, but have you looked after your own health, especially your financial health? Looking after your financial health may seem challenging or something to put off for another day. But as you know the longer you leave between health check ups, the more likely for problems to develop. Your financial situation is no different to your physical health in this regard.
Let’s look at some easy steps you can take to quickly assess your financial health:
Step 1: Check your Spending Pulse
Sometimes we need a reality check. In a consumer based society like Australia, there are endless products and services we can spend our money on. If we looked at many of our spending habits we would find that a sizable portion of our consumption is probably unnecessary and makes us no happier. The best way to check your spending is to do a budget and determine your surplus cash flow, that is how much money is left over after all your expenses are paid. How do you know you are healthy? A Doctor working full-time should be able to save 10% of their after-tax income. If you are unable to save 10% of your income it will be difficult to get ahead financially in the long-term. If you want to achieve financial independence one day, then saving 10% is really a starting point.
Step 2: Check your Debt Pulse
Here is an easy test, determine what percentage of your income goes in mortgage repayments. If the figure is greater than 30% then you may be experiencing what has now been coined as mortgage stress. If your just below that figure, what would percentage would it rise to if interest rates in Australia rose by 3%, up to more historically normal levels? Would that put you under pressure. Excessive debt is one of the biggest causes of stress and marital problems. Use debt to your advantage, but don’t let it overwhelm you.
Step 3: Check your Protective Pulse
If you were unable to work from this day forward, what would it do to your lifestyle? How would impact your family? It is time to check your insurance policies. Do you have enough life cover to ensure that your family could stay in the family home if you passed away? Still go to private school? If you were alive but unable to work, would your insurance policies replace the lost income? Insurance may be a dull topic but it is vital to your financial health.
Step 4: Check your Investment Pulse
Have you checked your investments lately? How are they performing? From time to time it is important to clean house. Run through your investments and assess how they’re doing. Are they earning a reasonable return on your capital? If not, is there a better alternative elsewhere? Investing ability is often deeply psychological and emotional, as we tend not to want to admit our mistakes and cut our losses, or we hold onto an investment thinking it will go up forever. One of the advantages of high quality advice is that an external party can give you objective advice without the emotion and fear. When it comes to our own money, often we are too close and can’t look at the bigger picture, and that is where a financial adviser can make a world of difference.
Step 5: Check your Retirement Pulse
Australia is blessed with a very tax efficient and sound retirement system. Superannuation is one of the most tax effective investment vehicles that you will ever be able to access. In fact the maximum tax rate during your working life is only 15% and when you retire, a superannuation fund become a tax exempt entity. Hence superannuation is one of the easiest ways to grow your wealth with minimal tax. Are you maximising your contributions into superannuation? Is the money invested for the long-term? Take the time to review your super fund and position it for the future, after all, outside of your house it is likely to be your greatest asset.
Step 6: Re-evaluate
Last, but not least, is to use your health check as an opportunity to re-evaluate your financial goals and to ensure that you are on track to achieving them. Are they still relevant? Do they need to be revised to reflect new circumstances?
You look after other’s health, don’t forget to look after your own financial health!