Boeing’s Model 299, also known as B-17 Flying Fortress, was in development for five years.
The level of sophistication in the plane was unheard of; it was an engineering marvel.
Once the aircraft was ready, Boeing decided to put on a show for the US Military.
On Oct 30, 1935, the flight took off from the runway on Wright Field, Ohio.
Onlookers were excited.
However, within seconds of taking off, the plane crashed into the field killing two people on board.
Investigation revealed that there was nothing wrong with the aircraft. The flight crashed because the crew forgot to release the flight control gust locks.
The Invention of The Checklist
Boeing realized one thing.
The engineering marvel they created was too much for humans to handle. There were so many processes to follow. It was hard for people to remember all the processes.
Enter – the checklist.
Boeings invented the checklist as a means to prevent catastrophe. The concept was simple – follow the instructions in the prescribed order.
Checklists and Your Financial Life
The checklist is a simple yet powerful tool.
Apply the same concept to your finances, and you have a robust process in place to manage your wealth.
In this article, I will give you two checklists to follow – yearly and monthly.
The Yearly Financial Checklist
Review your yearly checklist, preferably once in the last week of December.
#1: Health Insurance
Nothing wreaks havoc on your financial life like a medical emergency. Not only is it financially straining, but it’s mentally taxing as well.
Health insurance helps you worry less about money during stressful times.
Action Item: Review and top up your insurance plan. If your family members are not covered, consider a family plan.
#2: Financial Plan
If you don’t have a financial plan, create one. It’s an excellent exercise to help you get a 360-degree overview of your financial situation.
If you already have a plan in place, good job!
Action item: Adjust your financial plan if required.
#3: Asset Allocation
Your asset allocation is perhaps the most important step in wealth creation.
Too many people focus on the product selection. Do a quick search for the best mutual funds. You will get millions of results. Everyone is talking about it. But very few talk about the important part – asset allocation.
The ideal asset allocation will help you reach your goals faster with lower volatility.
Action Item: Review your asset allocation and rebalance if required.
#4: Tax Savings
The end of the year is when people scramble to make tax-saving investments. The HR and Finance team will soon be asking you for investment proofs.
Be prepared and avoid the last-minute rush. Ideally, you should start investing as soon as the financial year starts.
Action Item: Review tax savings investments. Max out 80C and NPS.
#5: Investment Performance
It’s good to review your investment returns once a year, but not frequently.
When evaluating your equity investments, look for long-term performance (3-year, 5-year, and 10-year), and consistency.
Action Item: Review performance and switch vendor/product if required.
#6: Credit Report
Most people look at credit reports during the loan application process. If your score is low, your loan can get rejected.
Proactively audit your credit report. If there are mistakes, you can get it corrected before the need arises.
Action Item: If required, take steps to improve credit score.
#7: Financial Freedom
Financial freedom is essential. If you are living salary-to-salary, you are in trouble.
Action Item: Think about a new passive income opportunity. Implement it!
#8: Income Potential
You can grow your wealth in two ways:
- Invest better; get more returns
- Invest more money
Investing better is not always in our control. However, if you have a larger corpus to invest, you can grow your wealth faster.
Which of the following is easier and more practical?
- Invest 8,000 monthly for one year to save up Rs 1 Lakh @ 8% returns
- Invest 7,000 monthly for 10 months to reach Rs 1 Lakh @ 32% returns
That’s the power of a small increment every month!
Action Item: Upskill yourself. Or consider a job change.
#9: Review Your Beneficiaries
If something unfortunate happens to you, your family members have to struggle to access money held in your name.
Having a nominee/beneficiary reduces the burden on your family.
Action Item: Add beneficiaries wherever missing; Especially in insurance policies.
#10: Financial Documents & Access
One of my close friend’s father died recently. His investments were spread across multiple banks and mutual funds.
However, family members had no idea how much money or which institution to approach. They spent months reaching out to colleagues, and various firms they suspected he had an account.
Losing a loved one is hard enough. Don’t let your family go through another painful process.
Make it easy for them.
Action Item: Collect all the required documents. Inform your spouse, children, and parents about how to access your money should the need arise
#11: Giving Back to The Community
It’s important to give back. While we all are stuck in the rat race to make more money, it helps to look back. Help the less privileged.
Action Item: Plan your charitable activities; include your time and money.
#12: Spending Overview
Are you spending recklessly? Is your monthly spending more than your income? What do you spend on the most?
Your budget should be able to tell you!
Action Item: Evaluate your monthly budget. Make adjustments as necessary.
With instant loan apps and paperless loan processing, it’s easier than ever to get into debt.
Getting out of debt, not so easy though!
As long as you have debt, you are not financially free. Try to pay off debt as quickly as possible.
Action Item: Evaluate all loans. Consider changing your loan provider if better rates are available.
#14: Emergency Fund
Rule of thumb says you need to have 3-6 months of emergency savings. However, I recommend 6-12 months of savings, including EMIs.
With rising uncertainty and unemployment, it’s harder to predict how much personal runway you’ll need.
Action Item: Review your emergency fund and top-up if required.
The Monthly Checklist
The monthly checklist, as the name suggests, needs to be reviewed every month.
A good practice is to invest first; spend later.
Do you follow it?
Action Item: Set up automated investments for expected salary date + 3 days. This way, even if your salary is delayed, you don’t face ECS bounce charges.
How are you spending your money? What categories of expenses need to be curtailed? Your budget will be the key to answer these questions.
Action Item: Review and adjust budget/spending as required.
#3: Credit Card Bills
Credit card debt is one of the costliest forms of debt.
With interest rates as high as 48%, you should always aim to pay your credit card bills in full.
Action Item: Set up auto-payments. Evaluate cheaper personal loans if you have massive credit card debt.
#4: Bill Payments
It’s easy to miss paying bills when you have so many of them. Late payment entails extra charges.
If you don’t have money problems, you should not have to pay late charges.
Action Item: Set up auto-pay using Phonepe or Google Pay.
#5: Upcoming Expenses
In India, we have celebrations all the time. Then there are annual expenses like insurance that you might forget about.
How prepared are you to meet your upcoming financial obligations?
Action Item: Plan for enough liquidity.
The Event-Based Checklist
The event-based checklists need to be reviewed when specific events happen.
#1: Received Bonus
Your company did well. Your appraisal came in, and you did an excellent job. So the company rewards you with a bonus.
What will you do with your sudden inflow of money?
Action Item: Invest at least 80% of your bonus. Spend the rest on yourself.
#2: Salary Increment
Finally, your company has given you a hike. You’ll now have more money in your hands.
What do you do with the higher disposable income?
Action Item: Increase all your investments, in line with your increase in salary.
#3: Added a New Dependent
Whether you had a baby, parents started staying with you, or you adopted a dog, you have new dependents now.
Your expenses will increase, and your disposable income will go down. This will have a cascading effect on your potential savings as well as financial goals.
Action Item: Review your financial goals and adjust as necessary.
Over To You:
Do you have a financial checklist that’s different? Share with us via the comments below.