Annual Financial Checkup

Just as an annual physical is important to your health, an annual financial checkup is important to your financial health. It is important to assess your financial situation at least once a year in order to remain on track with your long term goals.

The optimum time for this annual financial checkup is at the end of the year, in order to take advantage of any potential tax savings you can generate. However, most people have trouble fitting in this annual checkup with the busy holiday season. If you cannot review your finances at the end of the year, you should strive to do so as early in the new year as possible.

The first step to the annual financial checkup is to take stock of your financial goals. It is important to assess the progress you have made toward your long term goals, such as retirement, college education costs, etc. If you have not made progress, it is important to determine where you have fallen short. If you know where your financial plan is failing you will be in a better position to correct those shortcomings.

It is also important to evaluate any changes in your personal situation, and how those changes will impact your financial future. Major life events like a marriage, divorce or the birth of a child will have a profound impact on your financial future. It is important to change your long term financial plan in response to these life changing events.

The beginning of the year is also a good time to evaluate how well protected your most important assets are. Do you have sufficient homeowners’ insurance and will it pay for the cost to rebuild your home in the event of a catastrophe? What about flood insurance? Are the liability limits on your automobile insurance high enough to protect you in the event of an accident? What about life insurance? Evaluating insurance coverage is an important part of any financial checkup.

It is also a good idea to review your will and estate plan as part of your annual financial checkup. If any life changes have taken place, be sure to update the will and estate plan as needed.

Evaluating debt levels is an important part of your annual financial checkup as well. Are you making progress in paying down your long term debt load? Have you been able to decrease or eliminate your credit card balances? If you have been unable to pay down your debt, you need to evaluate why, and make the changes necessary to get your debt under control.

The annual financial checkup is also a great time to start planning for next year’s tax season. Be sure to review your deductions and plan for how you can structure your taxes to lower them in the future. Paying all your medical bills in a single year, for instance, may make you eligible for the generous medical deductions offered by the IRS. Tax planning should be an integral part of any financial plan.



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