Your Annual Financial Planning Checklist

What Is an Annual Financial Plan?

An annual financial plan is a way of determining your current financial situation. It involves taking into account all your assets – the amount of your salary, the amount of your savings and current accounts, and the amount of your retirement fund. You also need to consider your liabilities, including loans, credit cards and other personal debts. Don’t forget to include items such as your mortgage, rent, utility bills and other monthly expenses.

This overview should also take into account your goals and what you’ll need to do to achieve them. This may include such things as retirement planning, tax planning and investments.

This checklist includes the most important steps in the process of reviewing your annual financial plan. Check off each step as you go, even if you decide not to refinance your mortgage or have already paid off your credit cards. This will give you an overview of your finances.

Create a Personal Financial Inventory

Your personal financial inventory is important because it gives you an overview of the health of your financial results. This annual self-audit should include the following elements

a list of assets, including items such as your emergency fund, retirement accounts, other investment and savings accounts, home equity and education savings (any valuable jewelry, such as an engagement ring, should also be included in this list)
a list of debts, including mortgage, student loans, car loans, credit cards and other loans
A calculation of your credit utilization index, i.e. the percentage of a borrower’s available credit that he or she is currently using.
A credit report and credit score.
An analysis of the fees you pay to a financial advisor, if any, and the services they provide.

Set Financial Goals

Once you’ve taken stock of your personal finances, you can move on to setting goals for the next 12 months. These objectives should be divided into short-, medium- and long-term goals.

Short-term goals

Establish a budget, which can be made easier by using one of the best budgeting apps to manage your money.
Create an emergency fund or increase your savings in this fund.
Pay off your credit cards.

Mid-term goals

Take out life and disability insurance.
Think about your dreams, such as buying a house, renovating a home, saving to start a family or sending your children to university.

Long-term goals:

Determine how much you’ll need to save for a comfortable retirement.
Find out how to increase your retirement savings.

Create a Family Plan

If you’re thinking about having children or looking after elderly parents, there are some things you need to think about financially. Here are some of the things that might be on your to-do list:

If you have children, calculate how much you’ll need to save for future college expenses.
Choose the right education savings account.
If you’re caring for elderly parents, find out if long-term care or life insurance can help.
Determine whether you need long-term care or life insurance for yourself or your spouse.
Start planning your retirement, including your Social Security application strategy.

Review Your Retirement Savings Plans

Saving for retirement in an Individual Retirement Account (IRA) or 401(k) plan is a smart way to take advantage of certain tax benefits while preparing for the future. When reviewing your annual financial plan, you should consider the following:

Decide whether a traditional IRA or a Roth IRA is right for you.
Consider transferring an existing IRA to another brokerage firm.
Convert a traditional IRA to a Roth IRA. When your income or account value is lower, it may be appropriate to make this change at the lowest possible cost.
Do the same with your 401(k), which can also be Roth or regular.
Transfer old 401(k) accounts from a former employer.
If you’re self-employed, find out about the limits of a Simplified Retirement Plan (SEP-IRA) or other retirement accounts for the self-employed and maximize your contributions.
Increase or decrease your annual contribution to your retirement accounts.

Tip: It’s vital to review where your investments are, especially during a market shift, such as when the market cratered early in the COVID-19 pandemic.

Review Your Investments

It’s important for investors to take stock of their investment situation during the annual financial planning process. This is especially true when the economy is in a state of flux.

Check your asset allocation. If equities are falling, for example, you may want to consider adding real estate or fixed-income investments to your portfolio to offset some of the volatility.
Determine which investments best meet your asset allocation objectives, and check whether your current investments still match this profile.

Rebalance Your Portfolio

By periodically rebalancing your portfolio, you ensure that you’re not taking on too much risk and wasting your money by investing in securities that aren’t generating a decent rate of return. It also ensures that your current portfolio reflects your investment strategy, as changes in the market often result in a shift that needs to be corrected in order to maintain the diversification originally intended.

Examine the asset classes you hold in your portfolio and the gaps they present. If necessary, reorient your investments to rebalance the situation.
Examine the expenses associated with managing your portfolio and decide whether it’s time to try a robo-advisor or other cost-cutting strategy.

Warring: When making your plan, don’t forget to consider the tax implications of any financial changes you make.

Address Tax Planning for Investments

As you analyze and rebalance your portfolio, don’t forget to consider the impact that selling assets may have on your tax obligations. If you sell investments at a profit, you’ll have to pay tax on short-term or long-term capital gains, depending on how long you’ve held the assets. This step can wait until the end of the year. When you do, you should consider the following strategies:

Experiment with tax loss recapture, i.e. take a loss on certain investments to offset income tax owed.
Consider whether it makes sense to use appreciated securities to donate to charity or to support low-income family members.

Update Your Emergency Plan

As the world learned during the COVID-19 pandemic, a substantial emergency fund is invaluable in the event of financial problems.

If you don’t have three to six months’ worth of expenses, creating an emergency savings account should be a top priority.
Invest in insurance. Are you covered for temporary disability, for example?
Make sure you have financial and medical power of attorney.

Look Ahead to Future Savings

Throughout the year, think of other ways to save money to supplement your emergency savings and put more aside for the future. Consider

refinancing your mortgage
rethink your car insurance
Reduce your food bill
Use flexible spending accounts or health savings accounts
Reduce your consumption of cable TV or streaming services
Reduce your energy bill

Divert your paycheck into savings by contributing more to retirement accounts or directing money from your paycheck into an emergency savings account.

Build Alternative Income Streams

A 401(k), retirement plan or Social Security benefits can be potential sources of income in retirement, but they’re not your only options. Think about what else you could do to supplement your income.

Investing in a rental property and becoming a landlord can provide a steady income.
The best real estate crowdfunding sites can help investors diversify their portfolios and offer opportunities for competitive returns without the need to own a physical property.
Consider taking a part-time job. With the growing number of work-at-home jobs, you can find a flexible job that will augment your primary income.
If resources are scarce, you’re old enough and you own your home, see if a reverse mortgage might be a good solution for you.
Consider buying dividend stocks, creating a side business or investing in peer-to-peer loans. These options require more or less time and money to get started, but they all offer ways to increase income in retirement.

Use Financial Planning Apps

Using financial planning applications to track your expenses and income can simplify your financial life, but not all programs are created equal. When finalizing your annual financial plan, analyze the applications and software you use to see if they still meet your needs. If you’re not already using applications, take the time to analyze the options and see how they can help you manage your money.

What Is a Financial Plan?

A financial plan is an instant analysis of the state of your personal finances. It balances your assets and liabilities, while taking into account your financial goals and the steps you need to take to achieve them. It’s advisable to analyze your financial plan annually, as well as after any major life event – such as marriage, divorce, birth or death – that could have a significant impact on your finances.

Why Do I Need a Financial Plan Checklist?

You need a checklist to make sure you don’t forget anything important you should be keeping an eye on. It’s essential to check off all the items on the list, even if you don’t intend to implement some of them, like refinancing a mortgage, for example. It helps to know that you’ve considered all the options and possibilities.

Do I Need Professional Help to Complete My Checklist?

If your financial situation is relatively straightforward, you’ll have no trouble drawing up and checking off your own list. On the other hand, the more complex your financial situation, the more you should consider calling in a tax specialist, financial advisor or even an estate planning lawyer to help you get as complete an overview as possible.

The Bottom Line

An annual financial plan is an invaluable tool for maintaining peace of mind about your current and future finances. In the best-case scenario, you’ve already checked off every item on this to-do list. If not, don’t hesitate to set aside some time in your diary to do so.

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