December 6, 2023


Future Depends on What You Do

Your Annual Financial Planning Checklist

If you’ve taken on the task of mapping out your annual financial plan, you deserve a pat on the back. Making sure you’ve covered all the bases is important to both your short-term and long-term financial health. Keeping track of your progress with an annual financial planning checklist makes it easier to see which tasks have been completed and which you still need to tackle.

Key Takeaways

  • An annual financial plan allows you to determine your financial situation at the given moment.
  • It should include looking at all your assets and liabilities, deciding what your goals are, and selecting the methods you intend to employ to achieve them.
  • Make sure you check off every strategy you’ve considered, even if you decided not to pursue it.

What Is an Annual Financial Plan?

An annual financial plan is a way to determine where you are financially at this moment in time. This means considering all your assets—how much you get paid, what’s in your savings and checking accounts, and how much is in your retirement fund. It also means considering your liabilities, including loans, credit cards, and other personal debts. Don’t forget to include things such as your mortgage, rent, utility bills, and other monthly expenses.

This snapshot should also factor in what your goals are and what you’ll need to accomplish in order to accomplish them. This can include things such as retirement planning, tax planning, and investing.

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 if you have already paid off your credit cards. This will help you get a complete picture of your finances.

Create a Personal Financial Inventory

Your personal financial inventory is important because it gives you a snapshot of the health of your bottom line. This annual self-check should include:

  • A list of assets, including items such as your emergency fund, retirement accounts, other investment and savings accounts, real estate equity, and education savings (any valuable jewelry, such as an engagement ring, belongs here too)
  • A list of debts, including your mortgage, student loans, car loans, credit cards, and other loans
  • A calculation of your credit utilization ratio, which is the percentage of a borrower’s available credit that they’re currently using
  • A credit report and credit score
  • A review of the fees you’re paying to a financial advisor, if any, and the services they provide

Set Financial Goals

Once you have completed a personal financial inventory, you can move on to setting goals for the next 12 months. You should divide them into short-term, mid-term, 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 emergency fund savings.
  • Pay off your credit cards.

Mid-term goals

  • Get life insurance and disability income insurance.
  • Think about your dreams, such as buying a home, renovating a house, saving money to start a family, or sending children to college.

Long-term goals:

  • Determine how much of a nest egg you’ll need to save for a comfortable retirement.
  • Figure out how to increase your retirement savings.

Create a Family Plan

There are certain things that you should think about on the financial front if you want to have children or if you plan to care for aging relatives. These are some of the items that may be on your punch list:

  • If you have children, determine how much you’ll need to save for future college expenses.
  • Choose the right college savings account.
  • If you are caring for elderly parents, explore whether long-term care insurance or life insurance can help.
  • Consider whether you should purchase long-term care insurance or life insurance for yourself or your spouse.
  • Start to plan how you will time your retirement, including your strategy for claiming Social Security.

Review Your Retirement Savings Plans

Saving for retirement in an individual retirement account (IRA) or a 401(k) plan is a smart way to enjoy some tax advantages while preparing for the future. As you review your annual financial plan, you should consider the following:

  • Decide whether a Roth or traditional IRA is best for you.
  • Consider switching an existing IRA to a different brokerage.
  • Convert a traditional IRA to a Roth IRA. When either your income or the value of your account is lower, it can be a good time to make this change at the lowest possible cost.
  • Do the same for your 401(k), which can also be Roth or regular.
  • Roll over any old 401(k) accounts from a previous employer.
  • If you’re self-employed, get an update on the limits for a Simplified Employee Pension Plan (SEP-IRA) or other self-employment retirement accounts and maximize your contribution amounts.
  • Increase or decrease your annual contribution to your retirement accounts.

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 where their investments are during the annual financial planning process. This is especially true when the economy undergoes a shift.

  • Check your asset allocation. If stocks are taking a dive, for example, you may consider adding real estate or fixed-income investments into your portfolio mix to offset some of the volatility.
  • Figure out which investments will best meet your asset allocation goals, and whether your current investments still fit that profile.

Rebalance Your Portfolio

Periodically rebalancing your portfolio ensures that you’re not carrying too much risk or wasting your investment dollars on securities that aren’t generating a decent rate of return. It also makes sure that your current portfolio reflects your investment strategy, as changes in the market often cause a shift that needs to be corrected to maintain the diversification you originally planned.

  • Look at which asset classes you have in your portfolio and where the gaps are. If necessary, refocus your investments to even things out.
  • Consider the expense of managing your portfolio and decide whether it’s time to try a robo-advisor or another strategy to reduce costs.

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

Address Tax Planning for Investments

While you’re looking over your portfolio and rebalancing, don’t forget to factor in how selling off assets may affect your tax liability. If you’re selling investments at a profit, you’ll be responsible for paying short- or long-term capital gains tax, depending on how long you held the assets. This step can wait until the end of the year. When you get to that point, you’ll want to consider these strategies:

  • Try tax-loss harvesting, which means taking a loss on some investments in order to offset the income taxes you owe.
  • Explore whether it makes sense to use appreciated securities to make charitable donations or support lower-income family members.

Update Your Emergency Plan

As the world learned due to the COVID-19 pandemic, a sizable emergency fund is helpful when financial troubles descend, so be sure you have saved adequate resources.

  • If you don’t have three to six months’ worth of expenses tucked away, building your emergency savings should be a top priority. 
  • Invest in insurance. Are you covered in the case of a temporary disability, for example?
  • Make sure you have both financial and medical powers of attorney in place.

Look Ahead to Future Savings

As you move through the year, think about where else you could be saving money to fully fund your emergency savings and put aside more for the future. Consider whether you should:

  • Refinance your mortgage
  • Rethink your car insurance
  • Lower your food bill
  • Utilize flexible spending or health savings accounts
  • Cut spending on cable TV or streaming services
  • Curb your energy bill
  • Divert your paycheck to savings by contributing more to retirement accounts or funneling money directly from your paycheck into an emergency savings account

Build Alternative Income Streams

A 401(k), pension plan, or Social Security benefits may all be potential sources of income in retirement, but they’re not your only options. Consider what else you could use to supplement your income.

  • Investing in a rental property and becoming a landlord can provide regular income.
  • The best real estate crowdfunding sites can help investors diversify their portfolios and offer opportunities for competitive returns without having to own physical property.
  • Consider taking on a part-time job. With the growing number of work-from-home gigs, you could find a flexible job that will add to your primary income.
  • If funds are tight, you are old enough, and you own your home, explore whether a reverse mortgage could be a good solution for you.
  • Think about purchasing dividend stocks, starting a side hustle, or making investments in peer-to-peer lending. These options require varying degrees of time and money to get started, but they all provide avenues for boosting income in retirement.

Use Financial Planning Apps

Using financial planning apps to track your expenses and income can simplify your financial life, but not all programs are created equal. As you wrap up your annual financial plan, review the apps and software you’re using to see if they still fit your needs. If you’re not putting any apps to work yet, take the time to review the options and see how they can help you manage your money.

What Is a Financial Plan?

A financial plan takes a snapshot look at the state of your personal finances. It balances your assets against your liabilities while considering your financial goals and what you may need to do to realize them. It’s a good idea to look at your financial plan annually, as well as after any major life event—such as marriage, divorce, birth, or death—that can substantially affect your finances.

Why Do I Need a Financial Plan Checklist?

You need a checklist so that you don’t forget something important that you should be monitoring. It is vital to check off every item on the list, even if you don’t intend to implement some of them, like refinancing a mortgage, for example. It’s helpful to know that you considered all options and possibilities.

Do I Need Professional Help to Complete My Checklist?

If your finances are relatively simple, you should be fine creating and checking your own list. However, the more complicated your finances, the more you should consider hiring a tax specialist, financial advisor, and perhaps an estate-planning lawyer, to help you see the fullest picture possible.

The Bottom Line

An annual financial plan is an exceptionally valuable tool for maintaining peace of mind about your finances today and in the future. Best-case scenario: You’ve checked off all the items on this punch list by now. If not, don’t hesitate to put time on your calendar to do so.