We have annual doctor checkups, annual dentist checkups – but an annual financial checkup should also be on that list of things to do regularly to keep you (financially) healthy. Although typically done at the end of the year, going through your finances at any point yearly will help you keep track of your spending, saving, financial goals, and have you in good shape for a smooth tax time.
Pinpoint Your Goals
You can’t determine if you’ve been heading towards your financial goals if you haven’t identified what they are in the first place. Are you wanting to finish setting aside your emergency fund? Pay off the mortgage early? Move forward a set amount in your retirement plan? While there is an abundance of good advice and solid ideas, pinpoint what two or three financial goals you want to focus on. Both as the lens with which to look at the past year and the direction to head towards in the next. Think about both large and small-scale goals. Maybe a good small-scale goal to add this year is to set aside money each month to better prepare for the holiday season.
Consider Personal Changes
A lot can change in a year – especially in a year like we just had! Take stock of any major life changes that took place during the year before or are coming up within the next. These might include a job change, divorce or marriage, buying a house, having a baby, or retiring. Any of these will affect your monthly budget and probably your saving and investing goals as well. Significant life changes also usually necessitate a change in tax filing.
Adjust Your Budget
After pinpointing goals and keeping life changes in mind, go to your monthly budget with fresh eyes. Look through your last few months of expenses, and see if you did, in fact, stick to your budget. If not, is it something you can tighten back on, or have big life changes made that number unfeasible? Are you feeding a larger family? Have gas prices changed considerably? Have your subscription services added up?
Make End-Of-Life Plans
This may seem so far away to be out of mind, but accidents happen, and you do not want to be caught unprepared. Do you have a will? If so, it is wise to take a moment to review it during your financial checkup. The big life changes you just took stock of may come into play in your will. Now is also a good time to review your life insurance policy to make sure that it still provides the coverage you’d like.
Review Insurances
You need to be sure your assets are protected! Read through your various insurance policies to be sure that they are still a good fit and that no changes were made. This includes homeowner’s or renter’s insurance, auto insurance, health insurance, and long-term disability insurance. After reading through the policies, review your premiums and decide if you want to make changes. Savings can often be found in changing carriers or bundling multiple insurance types in the same carrier.
Check Your Investments
Make a list of all of your stocks, bonds, or mutual funds, and calculate the return you received from them during the past year. Are you satisfied? Do you need to make changes? Consider meeting with your stock broker to discuss your options and make decisions that reflect your financial goals.
Manage Debts
An unavoidable part of any financial checkup, it’s time to tackle your debts. The first step is to calculate your debt-to-income ratio. Is it a number you’re comfortable with? From there, move on to your credit cards. Ideally, your credit card debt will have decreased over the past year. If it hasn’t, this is one of the first places to tackle. It’s hard to invest and save when saddled with credit card interest payments. How is your mortgage? Should you refinance? Lastly, pull up your credit score and see how it was affected during the past year.
Prep For Income Taxes
If you itemize your deductibles, it’s best to keep abreast of them throughout the year rather than scramble in the spring. Look over the list of allowable deductibles, and spend some time gathering any receipts and purchase proofs you might need. You can also see how close you are to reaching any thresholds and use that information to plan your purchases. For example, medical expenses must exceed 7.5% of your income in order to be deducted. If you’re near that number but won’t necessarily reach it, do you have any medical purchases coming up that you could prepay? Making some charitable contributions would also be a wise thing to do during your financial checkup, as they are tax-deductible.
Check Your Retirement Plans
Ideally, we keep our finances healthy now so that we can eventually retire in financial safety and be generous to those we love. But good intentions don’t just materialize overnight. Are you maxing out your company’s 401(k) plan? Work towards reaching the contribution percentage they match – otherwise, you’re just walking away from money. If your employer doesn’t offer any sort of retirement plan, get the ball rolling on opening an IRA. Perhaps you’re already retired! Take a moment to see if you have a minimum yearly required withdrawal on your IRA.