Transcript FinancialCheck_upPPT

Diane L. Burnett, M.S.
Family Financial Planning
Family & Consumer Science Agent, Miami County
&
Susie Latta, M.S.
Family Financial Planning
Family & Consumer Science Agent, Marshall County
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How Are You Doing? A Financial
Check-Up
Program prepared by:
Susie Latta, M.S.,
Family Financial Planning
Marshall County Extension Agent, FCS
&
Diane Burnett, M.S.,
Family Financial Planning
Miami County Extension Agent, FCS
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Class Objectives

Provide assessment tools to determine
financial strengths and weaknesses

Provide worksheets to set goals and
make calculations

Provide suggestions to improve
financial management

Improve “financial fitness” and “screen”
for potential problems (like physicals)
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Class Topics:

Financial goals

Net worth

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Marginal tax
brackets
Financial ratios

Insurance analyses
Income & expense
statements

Retirement analyses

Spending plans
(budgets)
Investment
performance

Asset allocation
Credit cards

Retirement & estate
planning
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1. Financial Quiz

Financial Fitness Quiz (20 questions)

Scores: Always(5) to never (1)

Scores range from 20 to 100
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2. Financial Goals

Make your goals SMART
– Specific (date, cost)
– Measurable (progress)
– Attainable
– Relevant
– Time-related (deadline)
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Short-, intermediate-, long-term (match
investments to goal time frame)
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Develop an Action Plan
For Each Goal
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Approximate amount needed
Number of months to save
Divide number of months into goal
amount
Try to automate savings (e.g., credit
union)
Example: $15,000 goal
divided by 48 months =
$312.50 per month to save
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3. Net Worth

Assets: everything that you own
– Liquid (cash assets)
– Tangible (property)
– Investment

Debts: everything that you owe
– Short-term
– Long-term
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Assets minus debts equals net worth
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Benefits of Net Worth Statement

Can determine adequacy of emergency
savings
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Can determine home equity

Can analyze portfolio diversification

Can see gaps in planning (e.g., no IRA)

Can see the total amount of debt owed

Can use to track progress annually
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Often required for loan approval
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5. Income and Expense Statement

Do monthly; then annually
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Track Expenses
– Fixed
– Variable
– Periodic/irregular
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Track Income (all sources)
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Income Minus Expenses = Cash Flow
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6. Irregular Expenses

List all expenses that come irregularly
throughout the year
– Examples: car registration, school tuition,
birthdays, holidays, vacations, quarterly
property tax payment

Total each expense and divide by 12

Save that amount monthly in revolving
savings account to cover irregular
expenses
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7. Financial Ratios

Liquidity Ratio: Liquid assets divided by
monthly expenses
– Should be 3 (months expenses) or more

Debt-to-Asset Ratio: Total liabilities
divided by total assets
– Should be less than 1.0 (insolvency)

Debt Payment to Income Ratio: Annual
debt payments divided by gross income
– Should be .36 or lower
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8. Spending Plan/Budget

List anticipated sources of income

List expenses
– Fixed (including revolving savings)
– Variable

Compare budgeted amount with actual
amount

Adjust as necessary
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9. Tax Check-Up
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What is your marginal tax bracket?
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Would you do better in taxable or taxexempt investments?
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Are you contributing to tax-deferred
plans such as IRAs and 401(k)s?
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Could you contribute more?
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Is a Roth IRA conversion advisable
(check www.rothira.com)?
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10. Credit Card Check-Up
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Are there credit cards you don’t use that
can be canceled?
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Can you get a better interest rate?
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Have you checked your credit report?

Do you have a list of credit card contact
information (e.g., 800 numbers)?
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Would refinancing/consolidation help?
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Credit Score
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Special three digit number
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Affects how much you pay for credit,
insurance and other life necessities
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11. Insurance Check-Up
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Is your home insured for at least 80% of its
replacement cost?
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Do you have replacement cost riders?
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Do you have at least $300k of auto liability?
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Do you have LT disability insurance?
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Do you have a umbrella liability policy?
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Have you considered LTC insurance?
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Does your health insurance have high
coverage limits and few exclusions?
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12. Life Insurance Check-Up
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Most financial planner figure you need 75% of
your current household income in the event of
a death
Follow these steps:
– Calculate # of years income is needed
– Add expenses (e.g., funeral, debt, other)
– Subtract income, such as government benefits
and survivor’s income, and existing assets
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Review periodically as needs change
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13. Social Security and
Pension Check-Up
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Review annual SS benefit report
– Retirement benefits at 62, Full Retirement
depending on date of birth or age 70
– Disability benefits
– Annual earning amounts (check accuracy)

Request a pension benefit estimate (defined
benefit) or check balance (defined
contribution)
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Be alert to pension plan changes
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14. Retirement Check-Up
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Estimate required annual income (% of preretirement income)
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Subtract SS, pension, earnings, etc.
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Estimate life expectancy & retirement age
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Determine total required savings
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Add up value of existing retirement savings
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Subtract future value of savings
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Calculate total savings needed & annual (or
per-paycheck) savings amount
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Retirement Check-Up Resources
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Ballpark Estimate worksheet (available online
at www.asec.org)
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www.ces.purdue.edu/retirement Web site
(10 modules with online calculators)
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15. Risk Tolerance Check-Up
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Understanding Your Risk Tolerance Quiz
(www.rce.rutgers.edu/money/riskquiz)

Check online quizzes (investment firms)
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Most people more sensitive to potential
losses than potential gain
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Consider possible losses in dollar figures
(e.g., $3,000)- NOT percentages
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16. Asset Allocation
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Determine your desired asset allocation
(% of portfolio in stocks, bonds, or cash)
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“Stay the course” in bull and bear
markets and follow the model
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Rebalance back to the original
weightings if percentages shift by a
certain amount (e.g., 2%)
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17. Investment Performance
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Can do for each investment individually or for
total portfolio
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Write down beginning balance and ending
balance
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Add half of annual contributions to beginning
balance and subtract half of annual
contributions from ending balance
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Divide adjusted ending balance by adjusted
beginning balance
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Convert into a percentage
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18. Estate Planning Check-Up
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Do you have a current will?
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Have you recently reviewed beneficiary
designations on insurance and
retirement accounts?
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Are there any conflicts between your will
and the titling of assets?
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Do you have a living will, power of
attorney, trusts (if needed)?
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Final Thoughts

A financial check-up is as important as a
medical check-up
– Can help assess problems (e.g., high
debt ratio) and risks (e.g., lack of
disability insurance)
– Can evaluate progress toward goals
– Can help identify “action steps”
– Can provide motivation to change
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Any Questions?
Please complete your evaluation
form. Thank you.
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