How to Conduct a Financial Checkup

Most experts suggest you conduct a regular personal financial checkup on an annual basis or after a major life event (such as marriage or divorce). It’s important to follow a system when reviewing your finances to make sure you don’t leave anything out or miss something critical to your financial well-being. Here are the main topics you should cover when conducting a financial checkup.

Life Changes

Review any major changes in your life that have taken place since your last financial checkup. Have you changed jobs, gotten married, divorced, welcomed a new family member, bought a house, moved or retired? Each of these life events can trigger changes to your overall financial picture. As you go through the sections below, consider how these life changes may alter your plans moving forward.

Financial Goals

Financial goals are simply financial targets with a plan in place to reach them. Building a retirement fund is one example of a financial goal. Others include creating an emergency fund, saving up for a down payment on a car or house, or anything else that requires money you don’t already have. Evaluate your progress toward financial goals and adjust as needed. Once you achieve a goal, cross it off the list and replace it with another. (For more, see: Setting Financial Goals for Your Future.)

Budget

Your budget is a blueprint for how you handle income and expenses on a recurring basis. A budget should be monitored (and adjusted) monthly. The idea is to make sure you have enough income to cover all expenses and still leave funds to meet your financial goals. You can maintain your budget with pencil and paper, using a computer spreadsheet, or with one of many available free or inexpensive budget software programs. (See also: Best Budgeting Software for 2018.)

Debt

Review your progress in paying down all debt, including loans and credit cards. If your debt is rising, especially credit card debt, it might be time to adjust spending so that those balances start to decline again. Two popular ways to reduce debt are the snowball method and the avalanche method. Evaluate interest rates on everything from your mortgage to your car loan to credit cards. Consider refinancing or switching to another credit card with a lower rate. (For more, see: Credit and Debt Management: Reducing Debt.)

Credit Report and Score

The three main credit reporting companies – Equifax, Experian and TransUnion – are required by federal law to provide you with a free copy of your credit report each year. Obtain your reports at AnnualCreditReport.com. Check for errors and report any you find immediately. Credit reporting agencies are not required to provide you with a free (FICO) credit score, but you can obtain yours for a reasonable fee. Some banks and other websites provide free credit scores, but not all are official FICO scores. Use the suggestions that come with your reports to help raise your credit score. (For more, see: How to Read a Consumer Credit Report.)

Retirement Savings

As part of your financial checkup, evaluate your contributions to your company 401(k) plan. Make sure you are maxing out any employer match. Consider taking out a traditional or Roth IRA. The advantage of a Roth IRA is the tax diversification that comes with tax-free withdrawals upon retirement. Evaluate returns on your investments and rebalance your portfolio as needed. Consider your changing risk tolerance – both as you age and as the market becomes more (or less) volatile. Experts generally agree that your goal should be to put at least 15% of your pretax income into retirement savings. (See also: Starting a Retirement Fund: How to Start Saving.)

Other Savings

Review your progress toward other savings goals such as an emergency fund that covers between 30 and 90 days of living expenses, college savings funds (529 or Coverdell ESAs), or vacation fund. If you had to dip into your emergency fund for house or car repair, plan to replace those funds as quickly as possible. In addition, check available interest rates to make sure your savings are going into the highest-yielding accounts possible.

Taxes

The Tax Cuts and Job Act (TCJA) passed at the end of 2017 had a big impact on personal finances. The Internal Revenue Service (IRS) suggests that taxpayers conduct a Paycheck Checkup using its withholding calculator and make changes to withholding (W4) if called for. If you are self-employed (even part-time), don’t forget to re-evaluate quarterly estimated payments as part of your financial checkup. Make sure you have records for all tax deductions or credits for retirement or education savings, dependent care, medical expenses and donations. Pay attention to deadlines for deductions and retirement contributions and in general keep all tax documents in one place. You may want to schedule a meeting with your tax or financial advisor as part of your financial checkup to plan tax strategy. (For more, see: How the GOP Tax Bill Affects You.)

Insurance

Insurance needs change over time. Make sure you have an appropriate amount of life insurance, disability insurance (for income protection) and homeowners or renter’s insurance, including flood insurance if appropriate for your location. Re-evaluate health insurance needs including taking out a long-term care (LTC) insurance policy if you feel you need it. Consider switching insurance companies or raising deductibles on home and auto policies to lower premiums. You can also save money by bundling policies under one company.

Estate Plan

Evaluate (or create) your estate plan. Review your will or trust to make sure you’re happy with your choice of executor or trustee and anyone to whom you’ve granted power of attorney. Review beneficiaries and allocations to make sure they match your current wishes. Assess your living will or other advance directives. If necessary, engage an estate planning attorney to make sure you follow all applicable state and federal laws with any changes you make.

The Bottom Line

When you are finished with your financial checkup, you may want to consult one or more experts including a trusted financial advisor or other specialist (estate planning lawyer, insurance agent, tax adviser) to make sure you haven’t left out anything important. Make a written note of all changes you have decided to make as a result of your checkup and put in place a plan to make those changes as soon as possible. Then, relax until it’s time to do it all again next year. (For more, check out: Your Annual Financial Planning Checklist.)