Troubleshoot Your Plan's Risk Factors

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. In our special series, 21 Days to Improve Your Financial Life, we're going to help you improve your financial well-being one day and one job at a time. We'll start with some basic tasks and progress to some that are a little more advanced.

The first week is all about laying the foundation for a successful financial life--figuring out how you're doing, assessing and quantifying your financial goals, and making sure you have a safety net in case life throws you a financial curveball.

Central to financial wellness is gaining an awareness of and troubleshooting risk factors in your plan. Periodically taking stock of your net worth--that's your assets minus your liabilities--can help you see if servicing your debt is swamping your ability to save. Also take a look at how diversified your assets are. If you already have a lot of your net worth tied up in your home, for example, that should make you think twice about sinking more of your assets into a second home or rental property.

Creating an adequate an emergency fund is another key way to reduce risk in your financial plan. The standard financial planning advice is to set aside three to six months' worth of living expenses in highly liquid assets. But think about your own situation to right-size your emergency fund. If you're young and just starting out, you may be able to get by with an emergency fund that's closer to three months of very basic living expenses. On the other hand, if your financial life is more complicated--perhaps you have a mortgage and work in a specialized profession and earn a high income--you'd want to hold a substantially larger emergency fund amounting to a year's worth of living expenses or even more. High-paying, specialized jobs tend to be harder to replace than entry-level ones.

We'll cover these and many other key jobs to improve your financial well being over the course of the next few weeks.

Thanks for watching. I'm Christine Benz for Morningstar.com.