Just as we schedule annual physical check-ups to maintain our health, it’s important to perform regular check-ups on our financial well-being. A yearly financial review allows you to assess your current financial health, identify areas for improvement, and make adjustments to ensure you stay on track toward your financial goals.
Creating a personal finance routine for annual reviews doesn’t have to be complicated, but it should be comprehensive. In this guide, we’ll walk through the key areas to review each year and provide tips for conducting your own financial health check-up.
Review Your Income and Expenses
The foundation of any financial review is understanding your income and expenses. Start by reviewing your income sources, including your salary, side gigs, or investment income. Make sure you’re accounting for all earnings, including any bonuses or tax refunds.
Next, take a close look at your expenses. Categorize them into essentials, such as housing and groceries, and discretionary spending, like entertainment or travel. Use budgeting tools or apps to track your spending throughout the year and identify areas where you can cut back. By keeping your spending in check, you can free up money for savings and investments.
Assess Your Debt and Credit
Debt can have a significant impact on your financial health, so it’s important to review your liabilities regularly. Check the balances on your loans, credit cards, and mortgages, and make sure you’re making progress on paying them down. Pay close attention to high-interest debt, which can quickly erode your financial stability.
In addition to reviewing your debt, check your credit score. A high credit score can help you qualify for better interest rates on loans and credit cards, saving you money in the long run. If your credit score has dropped, take steps to improve it by paying down debt and avoiding late payments.
Evaluate Your Savings and Investments
Your financial review should include an assessment of your savings and investment accounts. Check the balance in your emergency fund—ideally, it should cover three to six months’ worth of living expenses. If your emergency fund has been depleted, make a plan to rebuild it.
Next, review your investment portfolio. Are your assets performing as expected? Is your asset allocation still in line with your risk tolerance and financial goals? If not, consider rebalancing your portfolio to get back on track. Also, ensure you’re taking full advantage of retirement savings vehicles, such as a 401(k) or IRA, to maximize tax benefits.
Plan for Major Life Events
Major life events, such as buying a home, having a child, or changing jobs, can have a big impact on your finances. As part of your annual review, consider any upcoming life changes and adjust your financial plan accordingly. This might mean increasing your savings for a down payment, revisiting your insurance coverage, or updating your estate plan.
By reviewing your financial situation in the context of major life events, you can make proactive decisions that keep you on track toward your long-term goals.
Set New Financial Goals
Finally, take some time to reflect on your financial goals. Have you achieved any of your goals from the previous year? Are there new goals you want to set for the coming year? Whether you’re saving for a vacation, building an investment portfolio, or planning for retirement, having clear financial goals will help you stay motivated and focused.
Once you’ve set your goals, break them down into actionable steps and create a timeline for achieving them. Regularly tracking your progress will ensure that you stay on course and make the necessary adjustments throughout the year.
