For those with high incomes, an annual financial assessment is more than simply adjusting a budget; it’s about understanding how effectively your wealth serves you. Avoid standard “net worth” figures and instead concentrate on these crucial but often neglected factors to guarantee your finances are robust, expanding, and in tune with your aspirations.
Assess Your “Liquidity”
Having wealth in illiquid forms, like luxury properties or collectibles, doesn't help in emergencies. Determine how much cash or funds are easily reachable—strive for enough to cover 3–6 months of vital expenses plus 5% of your total assets for any surprise opportunities. If your liquidity is lacking, think about using a home equity line of credit as a safety net.
To enhance liquidity, consider putting some of your investments into short-term, safer choices, such as money market funds or Treasury bills. These options can be easily changed to cash without any loss in value. It’s wise not to commit too much money to investments that have long lock-up periods, like specific private funds, unless you have an extra layer of cash set aside to handle any unforeseen expenses.
Examine “Asset Interactions”
Your investments should not operate independently. Evaluate whether your assets work well together: Can rental income balance the downturns in the stock market? Can dividends finance your travel plans? Ineffective interactions—like owning two costly vacation homes—indicate a need to reorganize for better overall performance.
Analyze “Debt Types”
Not every debt is problematic; it’s important to differentiate between “growth debt” (such as a business loan or a mortgage on a rental property) and “deadweight debt” (like high-interest credit cards or loans for luxury vehicles). If deadweight debt exceeds 10% of your monthly earnings, focus on eliminating it; growth debt should ideally yield returns that exceed interest costs.
Individuals with substantial wealth frequently overlook specific risks in their insurance coverage. Check whether your policies address areas such as rare collectibles, risks of cyber theft regarding digital properties, or liabilities from luxury activities (like yachting or private flying). A regular umbrella policy may not provide enough protection—consider adding tailored riders for your unique lifestyle.
Monitor “Lifestyle Spending Growth”
Observe if your expenses are increasing quicker than your income. For instance, a 15% salary boost alongside a 20% rise in dining or travel expenses is concerning. Calculate your “spending flexibility ratio”—how much you could reduce your spending without sacrificing your enjoyment. Aim for at least 25% to remain stable during income fluctuations.
Evaluate “Legacy Objectives”
Your wealth should mirror your long-term intentions. If charitable giving is a priority, ensure that your donor-advised fund has enough resources. If your plan is to pass down assets to family members, check the trust details to confirm they accommodate your children’s current needs (for instance, a trust for an adult child may require more adaptability). Discovering misalignment here means your wealth may not align with your values. A thorough financial checkup encompasses much more than figures—it’s about confirming that your assets enhance the life you desire. By concentrating on these factors, you will transform “wealth” into “well-being.”
