A 60-Minute Guide to Your Financial Fitness This comprehensive diagnostic report will help you find the weaknesses in your financial plan -- and tell you what to do next.
By Greg Anrig Jr. Reporter associate: Jersey Gilbert

(MONEY Magazine) – Perhaps you are suffering from a bleeding checking account. Or maybe you have mortgage migraines, complicated by stock market vertigo. Or maybe your only problem is a mild case of life insurance bloat. But no matter what ails your personal finances, this easy-to-follow fitness program can straighten you out in no time. No more excuses. Sit yourself down with a sharpened pencil and take MONEY'S financial fitness checkup. In just 60 minutes, you can see how well your measurements stack up in the five basic areas of personal finance -- owning a home, buying insurance, investing, saving for college and planning for retirement. By comparing your finances with the norms for American households with incomes of $45,000 to $75,000 a year, you can isolate the areas where you need a little toning up. Don't think that you have to become a financial Schwarzenegger. Your prime goal should be fiscal health, not bulging assets. Even if your proportions are slight now -- an annual income of $20,000 a year, say -- you can get yourself into better shape easily and stay that way through retirement. To create a financial plan, you have to begin by setting basic goals, such as owning your own home. Two-thirds of all American households are owners. The tax advantages and long-term investment benefits are so compelling that you will almost certainly want to buy a house when you are ready to settle down. In the meantime, don't overlook the advantages of renting. The story on page 66 will help you decide whether it is time for you to buy. If you have dependents, you will want life insurance to protect them if you die. And even if you are single, you will still need insurance for your car and your home or apartment, as well as health and disability coverage. But while no one should skimp on insurance, Peter Blackwell, a financial planner in Winter Park, Fla., says: ''Just about everybody pays more in insurance premiums than they need to.'' To find out how much coverage you really need -- and what it should cost -- see the story on page 68. When it comes to investing, your goal should be to increase your wealth without ever suffering a major loss. While trading securities can be exciting, it has little to do with your need to build your assets steadily. To find out how to choose the right investment mix for your portfolio, see the story on page 70. If you have children, you should start a college savings plan as early as possible. To pay in full for four years at a merely average public college, you have to save at least $33 a week, beginning the day your baby is born (see page 74). Finally, don't neglect your retirement. At present, Americans who live on $20,000 or more a year after they retire have to depend on their own savings and investments for at least one-third of their income. And as the story on page 76 explains, that dependence is likely to grow. Of course, you may also have goals that not everyone else shares, such as a vacation home in the hills. These desires should be part of your personal financial plan -- just as long as you are able to identify the ones that are truly important to you. ''Chances are that you won't have the wherewithal to achieve all of your goals,'' says Mary Malgoire, a financial planner in Bethesda, Md., who is chairman of the board of the National Association of Personal Financial Advisors. ''Setting priorities forces you to be realistic.'' For example, you will probably regret directing all your saving toward buying a new Jaguar if it comes at the expense of junior's college savings account. List your objectives in order of their importance; then assess the resources that you have to work with. The worksheet above will help you calculate your current net worth -- the amount by which your assets exceed your liabilities. Most of the information required to complete this worksheet is easy to get. For financial assets, look at the statements you receive from your bank, brokerage or mutual fund company and, if necessary, check the newspaper to update price quotations. Your assets can be divided into two categories -- liquid and illiquid. Cash, bank accounts, money funds and investments such as stocks, bonds, and mutual fund shares that can be converted to cash quickly are considered liquid. Between 15% and 50% of your assets should be liquid, and there should be enough ready cash in bank accounts and money-market funds to cover three to six months' worth of your living expenses. Says Peter Weston, a financial planner in Birmingham, Ala.: ''The most frequent problem that you find on a net worth statement is that too much money is tied up in assets that won't bail you out if you hit a rough spot.'' Illiquid investments are harder to evaluate. Consult for-sale ads in your newspaper to find out the value of your home and any other properties that you own. Be sure to use conservative estimates for your car and your Persian rug because you might not be able get their full worth if you had to sell them quickly. Your company benefits counselor should be able to tell you how much you now have in your 401(k) and other company benefit plans. And the tables in each of your life insurance policies and annuity contracts will indicate their current cash values. Ideally, your outstanding loans -- including mortgages -- should be less than half your total assets. If the percentage is a lot higher, clearly you are carrying too much debt. When you are overburdened, any efforts you make to save are likely to be overwhelmed by the interest on all of your debts. In addition, appreciating property, such as your home and investments, should constitute more than half your total assets. If they don't, you are spending too much on personal possessions, such as furniture, that will decline in value as time passes. To find out where you can raise money to improve your balance sheet, complete the cash-flow statement at right. This worksheet shows how much you earn in a year and where the money goes. The fastest way to find the numbers is to consult your 1987 tax return. Expenses involving fixed periodic payments are also easy to reconstruct from your checkbook records. These costs include your mortgage payments or rent, charges for utilities, car loans and insurance premiums. The harder items to gauge are those that involve variable expenses, which are usually responsible for cash-flow problems. The best way to find out how much you spent last year on clothing, dining expenses and the like is to go through your checkbook and credit-card statements for the last three months of 1987 and multiply by four. You should also add up your cash withdrawals for those months, multiply by four and allocate the money as best you can among the expenses that you usually pay for in cash. One warning: most people underestimate the amount that they actually spend by 10% to 20%. Add up your living expenses and subtract the total from your after-tax income. The difference is the amount you have left over for savings and investments. Most financial planners say that the figure should be at least 7% to 10% of your after-tax income. If you aren't setting aside enough, cut back your credit-card spending and pay off your balances as quickly as possible. With credit-card interest rates running as high as 22% a year, few other investments will offer as good a return. A side benefit from examining your 1987 bills is that you will probably be able to spot some frivolous expenses that are busting you. For instance, if you paid your hairdresser or barber more than your grocer last year, consider a new hairdo and more home cooking. You don't have to turn into Jack Benny; just be less of an Imelda Marcos. Most important, try to establish consistent savings patterns. Payroll-deduction plans, such as 401(k)s, may keep you from being tempted to spend as much. The most difficult part of your financial fitness checkup is now over. To complete the rest of it, you will hardly have to lift your pencil.

BOX: Chalk Talk Your personal balance sheet

Assessing your current net worth is the first step toward creating a long-term financial plan. This worksheet will show you how.

1. Cash and near-cash assets (bank accounts, CDs, T-bills and money-market funds and accounts)

2. Stocks, bonds and mutual funds

3. Total liquid assets (line 1 plus line 2)

4. Retirement savings (IRAs, Keoghs, 401(k) plans and other company plans)

5. Real estate (value of your home, second home and limited partnerships)

6. Cash value of life insurance and annuities

* 7. Collectibles (precious metals, art and antiques)

8. Personal property (car, furniture, clothes and jewelry)

9. Total assets (sum of lines 3 through 8)

10. Unpaid bills (taxes, mortgage or rent, and charge-account balances)

11. Loans (mortgages, home improvement, car, education and margin accounts)

12. Total liabilities (line 10 plus line 11)

13. Current net worth (line 9 minus line 12)

BOX: Chalk Talk Your cash-flow statement

Tracking your cash flow will show you how much you have to invest and indicate some expenses that you could trim.

1. Annual income (salaries; interest and dividends; child support or alimony; pensions, annuities and Social Security; and rents, royalties and fees)

2. Annual taxes (income and property taxes, Social Security contributions)

3. After-tax income (line 1 minus line 2)

4. Rent or mortgage payments and utilities

5. Food and clothing

6. Furniture and appliances

7. Recreation and entertainment

8. Car payments, repairs and gasoline

9. Medical, legal and financial expenses

10. Insurance premiums

11. Other

12. Total annual living expenses (sum of lines 4 through 11)

13. Funds available for savings and investments (line 3 minus line 12)