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How To Do An Annual Financial Checkup

written by: sherisaid•edited by: Rebecca Scudder•updated: 9/28/2010

You may be careful to get your car serviced on time, but when was the last time you did a comprehensive review of your financial picture? Learning how to do an annual personal finance checkup will help ensure that you are on the road to financial security…and not lost in a cornfield due to a wrong t

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    Getting started

    The first thing you'll want to do is evaluate financial goals. Things tend to change, and goals set previously may no longer apply, or no longer be realistic. Review last year's goals and check to see if those were met. If not, this is an opportunity to figure out where it went awry. Were the goals realistic? Did external influences, like an unstable market, interfere or boost projected progress? Realistically assess your goals and re-evaluate if necessary. Calculating your net worth will help provide clear picture of where you stand.

    In addition to external influences, personal finances can be derailed by changes in your personal life. Job changes, buying or selling a house, getting married or having a baby, retiring or changing locations can all significantly impact your financial health for better or worse. Planning in advance for whatever life throws your way makes the financial adjustment easier. If you're walloped by a sudden financial curveball, like unexpected job loss, having a handle on your investments and net worth in advance can help reduce stress and allow clear-headed contingency planning.

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    Evaluate your insurance package

    Protection of your assets is an important consideration in any financial plan. Review insurance coverage on home or rental, automobiles, properties, jewelry, life and disability. There's a fine line between adequate coverage and being insurance-poor. Take care to have enough, but too much is a waste of money. You may also want to shop rates and benefits to be sure you're getting the best coverage for the money.

    Review and update your will if necessary. Having your affairs in order will help your family cope in the event of death.

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    Evaluate your investment portfolio

    If investments have not performed as expected, it may be time to move your money around or sell stocks. Keeping in mind that short-term losses are not indicative of long-term performance...and that selling when the market is at a low point may not be the wisest move.

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    Debt-to-Income ratio

    Paying down your debt – or paying it off – is crucial to financial security. Interest payments can strangle a budget and create a financial rut difficult to climb out of. Make sure the interest rates are what you think they are and if not, try to negotiate with the credit card companies for a lower rate or shop for a lower rate at another company and move your balance. One of your primary financial goals should be to make sure there's more coming in than going out, and that includes accrued interest.

    It may also be time to evaluate your mortgage interest rate and take advantage of market conditions to refinance. Refinancing comes with a lot of fees that may make it a bad deal to refinance for just a couple of mortgage points, and amortization over an extended period of time may lower your payments now and cost you big in the long run. If it's affordable, you may be able to counter additional costs and save a ton of money by paying extra into the principle each month. Even a small amount can make a difference over a long period of time.

    Check your credit report, verify that it is correct, decide what to do about blemishes and make note of any weaknesses in your financial picture. A good credit score is one of the most valuable personal finance assets you can build.

    If evaluation shows that your budget needs tightening, look for painless savings. Examine cell phone packages to be sure you've got the right amount of coverage. Over or under, and you're spending too much money. You may also be spending unnecessary money on a home phone line. Strip the service plan of all but the essentials and save a good chunk of change every month. Installing a governor on your water heater and air conditioner can lower your electric bill and you probably won't even notice short interruptions in service. Call the power company for an energy evaluation. Simple, inexpensive fixes like window caulk can really add up in terms of power bills. Check your cable bill as well. Does anyone watch the premium channels? Enough to keep paying for them?

    Performing an annual personal finance checkup may seem like a daunting task, but it's well worth then investment in time. Most households hemorrhage money from a thousand little leaks and don't even realize it's happening. Even if your budget is healthy and you don't need to tighten up, who wants to waste money?