The process of providing financial fitness involves four basic steps.
If you have the time, objectivity, inclination and expertise in accounting, investments, taxation, insurance, and estate planning, you can do this process on your own.
Avoiding personal bias is difficult. Most people find it helpful to seek the aid of various professionals to derive the most benefit from this comprehensive process.
1. See where you stand!
Develop a profile of your financial health. Gathering and organize your financial data. Your financial data includes a current tax return; a list of your assets and liabilities; a breakdown of your monthly living expenses; retirement plans; all insurance policies you own plus any estate plan documents.
Your personal data should include information on all family members; a clarification of your goals and objectives and an accurate assessment about your tolerance for risk.
2. Diagnose: Analyze the data to determine your strengths and weaknesses. For example, your emergency cash reserves should be reviewed.
Are they sufficient?
Are they equal to at least three months fixed living expenses?
Are your current (liquid) assets sufficient to meet all current obligations ?
Do your investments match your goals and objectives?
3. Prescribe: This step is where specific course of financial action are selected.
If one of your objectives is to generate income, you might select an investment in an income (bond) fund.
4. Monitor: You also need to review your plan on a regular basis.
This regular “follow-up” will also provide an opportunity to compare results with your goals and objectives
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