Analyze Your Financial Needs

financial needs

Accurately knowing about your financial needs is a substantial part of having awareness about your personal life. If you’re considering taking out a loan, buying a new home, investing money, selling off stocks, buying insurance, or any other important financial decision you should first have your financial needs thoroughly analyzed.

While it’s best to talk with a financial advisor about your financial needs, you can think about them and analyze them on your own, too. Financial advisors are usually just as much salesmen as they are advisors, however honest and well intended they may be, so by analyzing your financial situation on your own you can formulate thoughts without the pressure to buy anything.

First, Look at Your Household’s Cash Needs

When you’re looking at your cash needs you’re looking at your family’s needs as well as your own. Cash needs are about your household. Cash needs analysis is a life insurance related matter, but it’s also central to understanding your overall financial needs. To figure these out, add up the following:

  • Mortgage balance/home equity loan balance (or, current rent)
  • Vehicle loans
  • Personal loans
  • Credit card balances
  • Funeral expenses (the average cost at the time of this writing is $8,000)
  • Six months’ worth of your current income (emergency survival money for your family)
  • College education needs: based on average costs at the time of this writing, multiply $26,000 per year per number of degree-required years per child (for example, getting a Master of Science degree usually requires six years) — or, if you plan on sending a child to a public university instead of a private one, use $12,000 per year in the calculation.

All of those things added up equal your household’s cash needs — that is, the amount of ready cash that your family would need if you died tomorrow.

Next, Look at Your Household’s Income Needs

This is another life insurance related analysis but, again, one that matters to your core financial needs even if you’re not necessarily planning on buying more life insurance at this time. To figure this out, multiply your current annual income by the following factors depending on circumstances. (For this illustration, we’ll say that your personal annual income now is $60,000):

    • If your spouse is 45 years old or younger, multiply it by 15.6 (so you would get $936,000).
    • If your spouse is 46 to 55, multiply it by 13.6 (so you would get $816,000).
    • If your spouse is 56 or older, multiply it by 11.1 (so you would get $666,000 ).

Those numbers signify the amount of money that you want to have in the bank, in a trust fund, or in the form of life insurance, depending on your circumstances. If you’re a single parent, calculate 75% of your current income (so in this illustration, $45,000) and then multiply it by the number of years remaining until your youngest child is 21.

Your household’s cash needs plus income needs equals your total financial needs (in addition to your income, that is). If you’re like many people, this number is outrageously higher than you ever thought. And that’s why you want to do this little financial needs analysis annually or whenever you’re considering making an important financial decision such as buying a home or taking out a loan. When it comes to your money, you need to know what the stakes really are.

Author Bio

Brandon Mills is a professional blogger that reviews stores for title pawns. He writes for TitleMax,  a highly recognized title loan company and store for title pawns.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>