Creating an Annual Financial Planning Checklist 


If there are any parts of putting together a financial planning checklist that you would like assistance on, the Atlas Financial Advisory Team would be happy to help craft a plan with you to help meet your near and long-term financial goals.

What Is an Annual Financial Plan? 

An annual financial plan is a way to determine where you are financially at this particular moment. That means taking into consideration all your assets (how much you get paid, what's in your savings and checking accounts, how much is in your retirement fund), as well as your liabilities, including loans, credit cards, and other personal debts. Don't forget to include things like your mortgage or rent, plus any of your 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 get there. This can include things like retirement planning, tax planning, and investment strategies.

Annual Financial Plan Check-Up 

Now that you know what an annual financial plan is, let’s recap the most important steps in the process. Check off each step that you've considered, even if your response was, "No, I don't want to refinance my mortgage," or "My credit cards are already paid off." The idea is to make sure you've looked at the issue. But you do need to cover every item the inventory list so that you have a full financial inventory.

Create Your 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 like your emergency fund, retirement accounts, other investment and savings accounts, real estate equity, education savings, etc. (any valuable jewelry, such as an engagement ring, belongs here, too).

  • A list of debts, including your mortgage, student loans, credit cards and other loans.

  • A calculation of your credit utilization ratio, which is the amount of debt you have versus your total credit limit.

  • Your credit report and score.

  • A review of the fees you’re paying to a financial advisor, if any, and the services your advisor provides.

Set Financial Goals 

Once you have a personal financial inventory completed, you can move on to setting goals for the remainder of the year, or even for the next 12 months. Your goals will be short-term, mid-term and long-term.

Among your short-term goals might be to:

  • Establish a budget.

  • Create an emergency fund or increase your emergency fund savings.

  • Pay off credit cards.

  • Assess your health and life insurance plans to see if adjustments are needed.

Your mid-term goals might include:

  • Get life and long-term care insurance and/or disability income insurance.

  • Think about your dreams, such as buying a first home or vacation home, renovating, moving – or saving so that you'll have money to have a family or to send children or grandchildren to college.

  • Define goals for charitable giving and potential volunteer work over the next 10 years.

  • Determine whether opening a trust could better protect your assets for your heirs.

Then, review your long-term goals, including:

  • Determine how much of a nest egg you’ll need to save for a comfortable retirement, with a hard look at how much you spend now and what you can reasonably live on when you no longer have employment income.

  • Figure out how to increase your retirement savings.

Focus on Family 

If you’re married, there are certain things that you and your spouse should be thinking about on the financial front. 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 plan.  

  • Purchase life insurance for yourself and your spouse. Assess whole vs. term policies with respect to long term costs and needs.

  • Price out long-term care insurance for yourself and your spouse and determine whether you can budget for this coverage of potential future (and constantly rising) health care costs.

  • If you are caring for elderly parents, investigate whether long-term care insurance or life insurance can help.

  • Start to plan how you and your spouse will time your retirement, including your Social Security claiming strategy.

Review Your Retirement Savings Plans 

Saving for retirement in an Individual Retirement Account (IRA) or 401K is a smart way to enjoy some tax advantages. As you put together your annual financial plan, you should consider whether you need to:

  • Decide whether a Roth or Traditional IRA is best for you now.

  • Consider switching an existing IRA to a different brokerage.

  • Convert a traditional IRA to a Roth IRA.

  • 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.

  • Increase or decrease your annual contribution amounts to retirement accounts.

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, as is happening now.

  • Check your asset allocation. A traditional metric is having your age equal to your percentage of fixed income in your investment portfolio. Or stated conversely, 100 minus your age equals the allocation to stocks and riskier assets than bonds. For example, if I’m 60 years old, I should consider having 60% in fixed income and 40% in stocks, real estate, etc. Now that interest rates have normalized to the historical average of approximately 5%, fixed income (bonds) are a much more attractive asset than they have been for the last 15 years.

  • If you are over-weight in a specific asset class, consider how best to rebalance to weather inevitable economic shocks.

  • Then figure out which investments will do the best job of meeting 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 (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 costs of managing your portfolio and decide whether it’s time to try another strategy or advisor to reduce costs.

Plan on Addressing 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 in time, you'll want to consider these strategies:

  • Harvest tax losses by replacing losing investments with different ones to offset a potentially higher tax bill.

  • Look into whether you should offset capital gains and losses.

  • Investigate whether it makes sense to use appreciated securities to make charitable contributions or support lower-income family members.

Update Your Financial Emergency Plan 

A sizable emergency fund is helpful if you run into a financial rainy day; be sure you have socked away adequate resources. While you’re at it, look at your broader emergency plan as a whole.

  • 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 for a temporary disability, for example?

  • Make sure you have a financial and medical power of attorney in place.

Look Ahead to Future Savings 

As you consider your expenses and long term savings strategies, consider whether you should:

  • Refinance your mortgage.

  • Rethink your car insurance.

  • Lower your food bill.

  • Utilize Flex Spending or Health Savings Accounts.

  • Cut the cable TV cord.

  • Curb your energy bill.

  • Divert your paycheck to savings, by contributing more to retirement accounts or funneling money directly from your paycheck to an emergency savings account.

Work on Building 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. Figure out what else you could build in, such as:

  • Investing in a rental property and becoming a landlord to provide regular income.

  • Real estate crowdfunding for investors who don’t want to own property outright.

  • A part-time job leveraging your interests and experience to supplement your income.

  • Purchasing dividend stocks, starting a side hustle, creating a website that you can monetize 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.

The Bottom Line 

An annual financial plan is an exceptionally valuable tool for your life (and peace of mind) today and for your future. Take the time to start one or seek help to creating a plan that you can then annually review and adjust as your financial and life circumstances change.

 

(This information was originally provided by Investopedia in 2018, with updates added here from Atlas Financial Advisors. We believe it remains sound financial advice. A link is provided below. The full Investopedia article can be found at https://www.investopedia.com/articles/personal-finance/your-annual-financial-planning-check-list.asp)

 

This analysis is informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. The material is not intended as a complete analysis of every material fact regarding any market, investment or financial planning strategy.