To safeguard their health, many people go to a doctor for an annual physical exam. You can do the same thing for your financial health. Here’s how.

Prepare for the checkup:

1. Decide on a date that is easy to remember. Perhaps your birthday would be a good choice.

2. List your assets and their market value. Record your list in three groups:

   • liquid assets (can be converted to cash easily),

   • investment assets (IRAs, pensions, mutual funds), and

   • tangible or use assets (home, vehicles, farm, business).

3. Total your assets.

4. List your liabilities. You can divide them into two groups:

   • short term liabilities (credit card balances, installment loans, etc.) and
   • long-term liabilities (vehicle loans, mortgages, etc.).
5. Total your liabilities.

6. Subtract total liabilities from total assets to find your net worth.

7. List your sources of income and the amounts that you receive.

8. Total your income.

9. Estimate your monthly spending (or cash outflow).

10. Multiply by 12 to convert monthly spending to annual spending.

11. Begin your annual financial checkup.

Find your Liquidity Ratio value.

• Do you have enough liquid assets to cover an emergency (for example, 3 months without income)? Calculate this by dividing your liquid assets (from step 2) by monthly income (from step 9).
• If the answer is greater than 3, you should be able to pay your expenses for 3 months without receiving any income. 

What is your Annual Savings rate?

• Look at your cash outflow. What amount did you save this year? Divide that amount by annual income to obtain your Annual Savings rate.
• What is your target rate for savings? Was the amount saved more, less, or the same as your target rate?   

What is your Annual Consumer Debt Payment ratio value?

• Look at your cash outflow. What is the total amount of payments that you made on consumer debt this year?  (Do not confuse this with short-term liabilities because those liabilities might extend for 2 or 3 years.)
• Divide this amount by annual income to find your Annual Consumer Debt Payment ratio value. If it is less than 15%, the experts say that’s good. If it is larger than 20%, try to reduce this level of debt. This is also called a Debt-Safety ratio.

Summarize your Checkup:

• My Liquidity Ratio shows that I can cover _____ months of expenses, if needed.
• My Annual Savings Rate is ____ % and my target Savings Rate is _____%
• My Annual Consumer Debt Payment Ratio value is ____ %. My target Debt Safety ratio is ___ %
• My net worth is _____.

          Based on these values, my goals for next year are: