Financial Checkup Steps

The annual financial checkup provides you with the opportunity to see whether you are following the right direction with regards to your financial objectives. By making an annual financial checkup you determine what you have done during the year and how far you are from your chosen destination.

The Right Time

It is highly recommended to execute your financial check up before the end of the year. This is considered as the most appropriate time since you can take advantage of the many tax-saving strategies available to investors. If you have missed this time of the year, the second recommended period is immediately after the new year.

The Starting Point

Every investor should have clear goals and objectives with regards of what exactly they want to accomplish by following a particular investment strategy. Therefore, when executing your financial checkup you should clearly determine your own financial goals and stay focused on them in order to properly assess whether you have progressed in your goal achievement or not.

Steps to Follow

Here are several steps you should follow in order to most efficiently execute your financial checkup.

Step #1 Changes in the Personal Conditions Identification

During the past year you may have experienced significant changes in your lifestyle. For instance, you may have get married, have a child, bought a house or whatever other change that may have a significant influence in your lifestyle and spending. Such major changes in your lifestyle require an immediate adjustment of your budget in order to maintain the balance. In order to cope with the currently occurred and anticipated in the future changes, you should plan in advance your alternative course of action, so that you don't experience any negative effects of such a transition.

Step #2 Emergency Anticipation

You should prepare even for the most unexpected events both negative and positive. You should carefully review your will and estate plan in order to prepare for unanticipated events. Also you should provide the necessary updates caused by particular changes during the year.

Step #3 Asset Protections

In your annual financial checkup you should carefully measure the level of asset protection. This includes the examination of health insurance, homeowner's, renter's and auto insurances. You should take special protection measures about your income earning ability by making long-term disability insurance.

Step #4 Investment Performance Measurements

The next step requires you to compute the returns you have acquired on mutual funds, stocks and bonds. This should be done in order to determine the performance of the investments and compare it with that of the rest of the market. In case your investments experience a relative low performance compared to the overall market, you should consider the reconstruction of your investment portfolio.

Step #5 Debts Measurements

The next step in doing your annual financial checkup concerns the evaluation of your debts. You should check what you have done for the control and pay back of the accumulated debts, which were incurred due to credit cards and others. Carefully examine the movement of the latter to determine whether the leaks are due to overspending your credit card. You should control your credit card spending, since the interest rates charged deprive you form additional investment resources.

Interest rate on your mortgage represents another debt factor you should take care of. The option of refinancing your mortgage should be considered only if the difference in interest rates compensates the closing costs.

Finally, when evaluating your debt records, order a credit report to see the movement on your credit score.

Step #6 Income Tax Reductions

Next step in your financial checkup includes the examination of your income taxes. In order to reduce the latter to the greatest extent possible you should check whether you have included all deductions you are eligible for. Refer to the list of allowable by law deductions and any you have missed. Some deductions are allowed to be made only if they represent a certain percentage of your income. Therefore it will be wise to bunch deductions into one year to take advantage of tax reductions. Another tactic that can be implemented is to pay early the tax-deductible items in order to reach the required limit.

Step #7 Retirement Plan Reexamination

The final step in your financial checkup requires the review of the performance of your retirement plan the participating funds. In order to benefit from the tax relieves that 401k plans provide, try to contribute the maximum amount you are able to. In case your employer has not included a retirement plan option in your contract, set an IRA account, which provides some of 401k plans' opportunities and several additional.

After you have followed these steps in your financial checkup and the results were not satisfactory, take the necessary steps to fix the problems until it is too late to take whatsoever actions and suffer significant losses.

Bookmark this page (CTRL+D) :