We all know that an annual checkup with a doctor is key to maintaining good physical health. An annual financial checkup works in the same way for your finances. An annual financial checkup gives you a chance to review your spending, saving and investment patterns over the past 12 months and determine whether you’re on target to meet your financial goals.
Unsure how to get started? These tips will help you evaluate your financial picture:
· If you haven’t already done so, determine your financial goals. First, write down your goals. Then, decide if you’ve gotten closer to reaching them over the past year. If you haven’t, look at where you’ve fallen short and try to figure out why that happened.
· Evaluate changes in your life. Have there been changes in the way you live over the last year? Do you foresee any major changes in the near future? Changing jobs, getting married or divorced, having a baby, retiring, or moving can have a significant impact on your income and lifestyle. These types of changes usually mean adapting your budget, spending, savings and investments to accommodate the transition.
· Expect the unexpected. Review your will and estate plan. Arrange to have them updated, if necessary.
· Assess your investment performance. Examine the return on your investments. How have they performed compared to the rest of the market? If an investment looks like it will continue to be a poor performer, consider whether it’s time to sell it.
· Take a look at your debts. Has your credit card debt increased/decreased this year? If you are depending on credit cards more than in the past, ask yourself why this is happening and try to come up with ways to prevent it from continuing in the future. Look at your mortgage interest rate. Is it time to refinance? What’s your credit score? You can get free copies of your credit report at www.annualcreditreport.com.
· Find ways to lessen your tax burden. Add up all your allowable deductions to see whether you should itemize when you file your return. Be sure you take advantage of any deductions for which you are eligible. Think about whether you should be bunching deductions into one year or accelerating deductions by paying tax-deductible items early.
· Examine your retirement plans. Are you contributing the maximum to your 401(k) plan? If your employer doesn’t offer a 401(k), does it offer any other kind of retirement savings vehicle? If not, set up your own individual retirement account (IRA).
You should do your annual financial checkup before the end of the year so you can take advantage of any tax-saving strategies. An annual financial checkup takes time, but if done thoroughly, it’s one of the best investments you can make in your financial future.