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Annual Financial Review Checklist

As the year comes to an end, it is essential to take a look at how it went by and plan for the coming year. You may have had a number of expenses, some planned and some unexpected, your personal and professional statuses may have changed, and your investment portfolio may have seen ups and downs. All of these changes and more need to be accounted for in your annual review, so you can prepare well for the coming year.

A financial review can help you do this. A financial review is an essential periodic task that can help eliminate errors and ensure you meet your goals. It can offer you a comprehensive view of your finances, so you are always in control of your money. A financial review is most often conducted annually and can be instrumental in streamlining your finances. It is advised to reach out to a professional financial advisor who can help carry out an annual review of your finances to ensure you are on track to attain your financial goals.

Here are some things you need to know about an annual financial review and how you can conduct one:

What is a financial review?

A financial review refers to assessing or evaluating your financial status by examining your expenses, income, assets, and debts. Companies, as well as individuals, can carry out an annual financial review. In regard to personal finance, an annual review takes into account your individual financial situation and helps you plan ahead. A typical financial review includes your income from multiple sources, such as a job, a business, a rental property, returns from investments, and more. It also includes your expenses, such as insurance premiums, essential monthly expenditures, travel or commuting, and more. Additionally, it takes into account your debt liabilities, such as loans and credit card dues, and your financial assets, like real estate, stocks, bonds, gold, collectibles, and others.

This conclusive review helps you understand the status of all your financial inflows and outflows and enables you to manage your money with better precision and ease. It also allows you to steer your financial journey in a direction you see fit and fix any shortcomings in your retirement, tax, education, estate plan, etc.

Reasons to have an annual financial review checklist

1. Track change in jobs or income

An annual financial review can help you track any changes to your income in the past year. If you have switched jobs, you may see a number of modifications to your cash inflows and outflows. The first difference will be seen in your salary. Your income may increase or decrease, which will directly impact your lifestyle. Secondly, you may see a difference in other benefits like allowances, insurance, and company-sponsored retirement plans. In fact, the 401k retirement plan is perhaps one of the most important things to pay attention to in this situation, as it can directly impact your retirement. You may have to roll over your 401k to the new employer if you shift jobs. The employer match can differ, the investment options can change, and your returns can get affected. The new employer may also not offer a 401k altogether. In this case, you may have to shift to an Individual Retirement Account (IRA). While this will provide you with similar benefits, your overall retirement corpus can suffer as you would not have the same contribution limits for an IRA as you do with a 401k.

You may also experience a change in your income due to other factors like changes to your business, rental property, etc. In this case, there could be other underlying matters to pay attention to as well. For example, if you suffer a business loss, you may have to invest more in your business out of your personal income.

All of these events and more can be added to your annual financial review checklist.

2. Review changes in your lifestyle that could affect your finances

Just like your income or employment, your personal situation can also alter. Events like marriage, divorce, losing a loved one, having children, disability, etc., can directly impact your finances. For example, if you get married, you may be faced with two situations. First, if your spouse works and earns money, your household income will increase, and you may be able to enjoy a better lifestyle together. However, this will also impact your tax if you decide to file your tax jointly. In the other case, if your spouse does not work and is dependent on you, your expenses will increase, and your savings will shrink. Likewise, divorce can culminate into alimony payments, having children can add costs like their healthcare, education, and daily needs, and disability can impact your ability to work or earn while also increasing your expenses on healthcare, house help, etc.

3. Monitor changes in savings rates

 A change in your savings rate due to any of the factors mentioned above or other reasons will immediately affect your future financial stability. Your savings rate will ideally change in two situations – if you are earning more or if you are earning less. It is essential to review both of these instances in your annual review. In the case of a dropping savings rate, planning well and finding ways to increase your income or decrease your expenses is crucial. In the case of a rising savings rate, it is essential to ensure that you use your savings effectively by investing it in the right instruments, paying off debts, and keeping a futuristic outlook.

4. Review the performance of your investments

The market can be volatile, and your investments are bound to fluctuate with time. If the performance or value of your investments fluctuates, it is good practice to review them periodically. If an asset is not performing well, you may want to switch to other funds. Likewise, you may consider investing more if an instrument is doing well. You may also consider altering your portfolio based on market dynamics. Interest rate changes, business cycles, demand and supply trends, and other similar factors can impact different investments differently. Therefore, keep an eye on these factors and ensure they are a part of your annual financial review checklist.  

5. Reassess your level of risk

The level of risk can depend on a number of factors, such as your age, income, goals, etc. You would likely have a higher risk appetite if you are young and have many years before retirement. However, your risk appetite will drop as you age, especially during the years preceding retirement. Similarly, if you have an immediate goal, such as a child's college education, you may want to move to low-risk options around the time of redemption to avoid any market volatility. An annual financial review can help you assess such situations and make changes to your investment plan according to your evolving needs and risk appetite.

6. Monitor the outflow of taxes

An increase in income, marriage, retirement, etc., can impact your tax liabilities. For instance, if you have retired and are now using your Roth IRA for your retirement needs, you will not be taxed on your distributions. In this case, your tax liabilities may lower. On the other hand, if you have received a bonus or promotion and your yearly income is higher than before, your tax liability would increase. If you receive an inheritance this year, you will again be up for higher tax dues. An annual review can help you identify the reasons for these changes and target them accordingly. For instance, if your income increases, you may have to invest appropriately to ensure the most favorable tax outcome.


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Types of annual financial reviews to carry out with a financial advisor

An annual review with a financial advisor can help you effectively plan your finances. Here are some types of reviews that you can add to your annual financial review checklist:

1. Lifestyle annual review

Lifestyle review can include your daily expenses, such as electricity, water, coffee, rent, and other similar expenses. Your day-to-day expenses depend on your lifestyle and whether or not you have a budget in place. A budget can be helpful in not only tracking but also controlling your expenses. Therefore, it is essential to review it every year and see if you can make any changes to it. For example, if you are spending more than usual and your savings are getting affected, you would need to eliminate some expenditures. You may prioritize eating in over eating out, moving to a different neighborhood, downsizing, etc.

2. Family annual review

Your family's financial needs, such as insurance, healthcare, etc., can require upgrades, too. When you create an annual financial review checklist, check if your family has sufficient insurance. Each member should have adequate health insurance. Additionally, you should have a suitable sum assured for your life insurance. In the case of a disabled family member, disability insurance is also critical. You may also want to pay attention to your family's other needs, such as your children's education expenses. You can invest in a 529 education savings plan for the same. You can adjust the contributions every year as per your evolving financial situation, inflation, and your child's needs. 

3. Estate planning annual review

Estate planning is one of the essential components of financial planning as it affects not only you but also your future generations and descendants. Usually, estate planning can begin with a will. The will should state your beneficiaries, the share of assets they get in your absence, and other similar details. However, an estate plan can include several different components, like trusts, power of attorneys, health directives, and more. All of these things can require changes depending on your personal equations. For instance, if you get married and adopt your spouse's children, you may want to add them to your will too. Likewise, if you have been diagnosed with a disability or illness, you may need to set up appropriate health directives.

4. Retirement annual review

Retirement is another very critical aspect of your financial plan. Your financial advisor’s annual review checklist must take into account your retirement needs and make any alterations if needed. For example, if you are nearing retirement, you may want to make changes to your investments and move to low-risk options. Additionally, you may need to plan your Required Minimum Distributions (RMDs) in the case of a traditional 401k account. This would further impact your tax situation in retirement. So, make sure you plan well.

Additionally, retirement planning can include debt management, long-term care insurance, enough savings and insurance for healthcare expenses, and more. As you grow old, your idea of a perfect retirement is likely to alter. Your annual financial review can help you determine whether or not you are on the right path.

5. Healthcare expenses annual review

Healthcare expenses are one of the significant cash outflows you are likely to witness in the later stages of life. They can increase in retirement and old age. Therefore, saving for them beforehand is essential. With rising medical inflation, it can be hard to save enough. However, insurance policies, and plans like Health Savings Accounts (HSAs), Medicare, etc., can help. These can help you slowly but consistently save for your future expenses. You can talk to your financial advisor about your healthcare savings at the time of your annual review to understand where you stand and how much more you need to save.   

To conclude

Financial planning is an ongoing process. An annual review with a financial advisor can help you do this and track your progress at every step. It enables you to identify the loopholes, benefit from the progress, and effectively take charge of your money. It is also helpful in offering you confidence and peace of mind about your future financial status and security.

Therefore, consider hiring a financial advisor and reviewing your financial plan before the year ends, so you can start afresh. Use the free advisor match service to match with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.