Your Money Check-Up: Why an Annual Financial Exam is Key
20 Nov 2024
When was the last time you sat down and thoroughly reviewed your finances? If your answer is “I can’t remember” or “never,” you’re not alone. Life gets busy, and managing your financial health often takes a backseat to more immediate concerns. However, just as you schedule annual physicals to maintain your physical health, an annual financial check-up is essential for your financial well-being.
Here’s why it’s crucial to make this a yearly habit and how to conduct a meaningful review.
Why You Need an Annual Financial Check-Up
1. Track Progress Toward Goals
Financial goals, such as buying a home, retiring comfortably, or paying off debt, require consistent monitoring. An annual check-up allows you to measure your progress and adjust your strategy. Are you saving enough? Is your investment portfolio performing as expected? Regular reviews help you stay on track.
2. Adapt to Life Changes
Major life events—marriage, a new job, having a child, or a sudden medical expense—can significantly impact your finances. A yearly financial review helps align your budget, savings, and investments with these changes.
3. Stay Prepared for Emergencies
Do you have a fully funded emergency fund? Annual check-ups allow you to evaluate your safety net. If unexpected expenses arise, like car repairs or medical bills, having a financial cushion will prevent you from falling into debt.
4. Optimize Your Financial Plan
Tax laws, interest rates, and financial products change frequently. An annual review allows you to review your plan, advantage of new opportunities and avoid costly oversights, such as missing out on tax credits or using outdated investment strategies.
5. Identify and Eliminate Wasteful Spending
Over time, subscriptions, fees, and unnecessary expenses can creep into your budget. A yearly review helps you identify these money leaks and redirect funds toward your goals.
How to Conduct Your Annual Financial Check-Up
1. Review Your Budget
– Compare your actual spending to your planned budget.
– Adjust categories as needed to better align with your lifestyle and goals.
2. Assess Your Debt
– Check balances on loans and credit cards.
– Create or update a repayment plan to eliminate high-interest debt as quickly as possible.
3. Evaluate Savings Goals
– Review your progress toward short-term goals (like vacations) and long-term goals (like retirement).
– Make sure you’re contributing enough to retirement accounts, such as a 401(k) or IRA.
4. Check Your Investment Portfolio
– Evaluate your portfolio’s performance and is aligned with your risk tolerance and time horizon.
– Rebalance your investments if necessary.
5. Audit Insurance Coverage
– Review policies for health, life, home, and auto insurance.
– Update coverage to reflect any major life changes.
6. Update Your Estate Plan
– Verify your will, power of attorney, and beneficiary designations are current.
– Discuss your plan with loved ones and financial professionals to avoid future confusion.
7. Consult with Professionals
– Meet with a financial advisor, tax professional, or accountant to gain professional insights.
– Address any concerns and take advantage of their expertise.
Benefits of an Annual Financial Check-Up
– Overall Wellness: Knowing your finances are in order reduces stress and improves overall well-being.
– Increased Confidence: Understanding where you stand financially empowers you to make smarter decisions.
– Proactive Problem-Solving: Identifying issues early prevents small problems from snowballing into crises.
Final Thoughts
Your financial health is just as important as your physical health. By dedicating time each year to review and refine your financial plan, you can have confidence you’re moving closer to your goals while staying prepared for life’s uncertainties.
Make your financial check-up a non-negotiable annual ritual. After all, your future self will thank you for the effort and care you invest today.
Important Information:
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
