8 Steps to Evaluate Your Financial Health

In today’s blog, I would like to talk to you about the importance of checking your financial health when investing in real estate. Like a health check with your doctor, a financial health check alert you to any potential problems or issues that could seriously damage your life. As a real estate investor myself, I strongly advise the benefits than can be obtained from checking your financial health. I have met many real estate owners in my career, and many were asset rich and cash poor due to financial health issues. I will reveal the one vital component to help solve this problem and provide eight steps that will help increase your wealth.

As real estate investors, we need to be as healthy as possible with our finances as it’s an industry of focus and endurance. So, the healthier we are, the better we will compete in the game. So, let’s begin on how to diagnose your financial health.

1.   Determining Net Worth. Net Worth is the sum of your assets against your debts and liabilities. Take one figure from the other to reveal if you have a positive or negative. This will reflect your current financial health and allow you to plan for the future or take action to fix and improve a negative result. It is critical that you track and manage this factor over time.  I have found that many people focus on their assets and how they appreciate but fail to take account of their liabilities.

2.    Calculating Debt To Income Ratio. This factor calculates your monthly income to monthly debt repayments and is used by financial lending companies to ascertain your ability to repay loans and the interest rate they charge.  This rating the data used by lenders to evaluate how financially comfortable you would be taking on debt or mortgage.

3.    Estimating Lifestyle Costs. This figure can be calculated by adding all your living and expense costs. These will include housing, transportation, personal insurance, professional dues, business related expenses, food, pets, personal care, entertainment, debt repayments and taxes. if you’re self employed, you need to pay that on your own, savings and investments, gifts for donations and legal. Compare the final figure to your net income and it will return a positive or negative cash flow situation which is very important in real estate to have a positive cash flow.

4.    Optimizing Cash Flow. This will ensure that the timing of income coming into your account best meets its repayments. Basically, you need to time all of your bills and know when they are due for payment so you have enough cash flow or cash in the bank to pay them until the subsequent deposit of money comes into your account.

5.    Review Of Investment Criteria. Reviewing your investment criteria is something that you need to do on a regular basis. If not yearly, every two or three years, as things like the market and macro environment fluctuate daily. I would strongly advise that you talk to a wealth advisor to help you manage this complicated area and to provide you with a second pair of eyes to watch over your investments and warn you of any potential issues looming on the horizon.

6.    Review Insurance Criteria. Its also important to review regularly the many insurance policies that you pay for to obtain the best price and cover. These policies include health, employment, sickness, disability, public liability, car, house, and life insurance. The latter is very important to have. As a rule of thumb, I always recommend to have 10 to 12 times your salary as a coverage for life insurance.

7.    Obtain Credit Score. I would advise that you review your credit score regularly to make sure there are no mistakes such as people using your name or co signed loans or asset affecting your rating. Mistakes do happen often with credit scores but its easy to rectify if you challenge it. You can also take actions to improve your credit score which is a critical factor that lending companies use to ascertain your ability to repay and the cost of credit.8.    Review Your Will. It’s essential that you review your will and power of attorney regularly as things, and most importantly, people change in life. Suppose you have an accident or are incapacitated at any time. In that case, the person you appoint as power of attorney over your financial affairs must be somebody you trust to ensure your best interests are prioritized.

In conclusion, keeping an eye on your financial health is just as important as your physical and mental health as they are all connected. We all live busy lives, and if you are investing in real estate, you will have a lot of things to micromanage, so it’s always a prudent idea to use the services of a wealth advisor to help you manage and oversee your affairs. Even if it’s to remind you to pay a bill or advise you of a cheaper insurance deal, a wealth advisor provides peace of mind that somebody else is looking out for your financial health. I am always available to offer help and advice in the strictest of confidence, so please feel free to contact me. So, until next time, take care and be healthy and happy.

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