Budgeting How To Do An Annual Financial Checkup These 8 Tips Can Help You Manage Your Money for the New Year By Deborah Fowles Deborah Fowles Deborah Fowles was a financial planning and budgeting expert for The Balance who spent over a decade contributing her expertise. She worked in a variety of fields prior to diving into writing, including pathology and marketing. In addition to publishing two books about personal finance, she wrote poetry, for which she won the Poetry Guild's Award for outstanding poetry composition in 1997. learn about our editorial policies Updated on November 16, 2021 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by Ariana Chávez Fact checked by Ariana Chávez Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced. learn about our editorial policies In This Article View All In This Article 1. Identify Your Goals 2. Evaluate Changes in Your Situation 3. Protect Your Assets 4. Prepare for the Unexpected 5. Evaluate Your Investment Performance 6. Evaluate Your Debts 7. Reduce Your Income Taxes 8. Review Your Retirement Plans Photo: shapecharge / Getty Images You may visit your doctor once a year to make sure all is well, but there's something else to pencil on the calendar: an annual financial checkup. If you were on a long road trip, you'd stop occasionally and look at the map to see if you were headed in the right direction. An annual financial checkup serves the same purpose. It's an opportunity to review how you've done financially over the past twelve months and make sure you're still headed in the right direction when it comes to managing your money. A good time to check in with your finances is before the end of the year so you can take advantage of any tax-saving strategies, but if you can't fit it in during the busy holiday season, plan on doing it as soon after the new year as possible. Here are the key steps to take when planning a money checkup: 1. Identify Your Goals The first step in your financial checkup is evaluating your financial goals. Have you made progress on them this year? If not, where have you fallen short? Can you figure out why? Have your goals changed during the year? If so, revise them and write them down. Next, consider what new money goals you'd like to set. For example, you may want to fully max out your 401(k) at work or add another $10,000 to your emergency fund. Establish clear goals and break down the action steps you need to take monthly, quarterly and annually to reach them. 2. Evaluate Changes in Your Personal Situation Have changes in your personal situation taken place in the last year or do you anticipate any major changes in the near future? A job change, divorce, adding a baby to your family, retiring, buying a house, getting married, or moving can alter your income and your lifestyle significantly. You may need to adapt your budget, your spending, your savings, and your investments. Your tax filing could also be affected if you've added to your family or you've seen a major increase or decrease in your income. Having time to plan for these changes in advance will make the transition much smoother. 3. Protect Your Assets Next on your annual financial checkup to-do list is considering how well you're protecting your assets. Start by reviewing your homeowner's or renter's insurance, health insurance, auto insurance. Don't forget to protect the greatest asset of all - your income-earning ability - with long-term disability insurance. Note While reviewing your insurance coverage, also review your premiums. Consider whether you can save money by switching to a different carrier or bundling your various insurance coverage together with the same provider. 4. Prepare for the Unexpected Review your will, and if applicable, your estate plan. Have any changes taken place that requires updating? If so, you may need to update your will. Also, review your life insurance coverage to make sure you have a large enough policy to protect your loved ones financially if something should happen to you. And if you don't have life insurance yet, that's something to consider getting sooner, rather than later. The younger and healthier you are, the lower your premiums are likely to be. Meet with a life insurance agent to discuss whether a term or permanent life insurance policy is best for your situation. 5. Evaluate Your Investment Performance Calculate the return on each of your stocks, bonds, or mutual funds. Are you satisfied with their performance compared to the rest of the market? If you don't believe the investment will recover its losses, it may be time to sell the dogs. The end of the year is a good time to harvest tax losses. Harvesting losses allows you to offset capital gains on your investments with losses stemming from under-performing investments. This strategy is effective in a taxable brokerage account, since investments in a 401(k) or IRA are already tax-advantaged. Note Watch out for the wash-sale rule when harvesting tax losses. This IRS rule dictates that any new investments you purchase within 30 days of selling an investment to harvest losses must be substantially different. 6. Evaluate Your Debts As part of your annual financial checkup, consider how well you're doing with managing debt. Specifically, evaluate your debt to income ratio. Has your credit card debt decreased this year? If not, it's time to figure out where the leaks are taking place and try to plug them. It's difficult to get ahead and invest when too much of your income is going to interest payments on credit cards. How's the interest rate on your mortgage? Should you consider refinancing? Even a small dip in rates can make a big difference in the life of your mortgage, but you have to consider closing costs to see if it's worthwhile. Lastly, how's your credit score? If you haven't ordered your free copies of your credit report, now's a good time to do it. You can get one free copy of your credit report per year from AnnualCreditReport.com. Once you have your copies of your credit reports, review them carefully and dispute any errors you come across. 7. Reduce Your Income Taxes This is a good time to plan for next year's taxes. What can you do to minimize them? Add up all your allowable deductions and see if you can itemize. Review the list of allowable deductions and make sure you take advantage of any you're eligible for. Consider bunching deductions into one year or accelerating deductions by paying tax-deductible items early to help you reach the threshold for deducting. For instance, medical expenses can only be deducted if they exceed 7.5% of your income. If you're close, pre-paying an orthodontia bill or scheduling that elective surgery before the end of the year could save you some money on taxes. 8. Review Your Retirement Plans Last but not least, look at how you're doing with regard to retirement funds. Are you contributing the maximum to your 401(k) plan? This is one of the best tax-reducing strategies available. If your employer doesn't have a 401(k), does it offer any other kind of plan? If not, consider setting up an IRA on your own. Also, look into whether your company offers other ways to save, such as a Health Savings Account. An HSA isn't a retirement plan, per se, but it's a good way to save for future health care expenses on a tax-advantaged basis. Note HSAs are associated with high deductible health plans only. But they offer triple tax advantages: tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses. How'd you do? If your financial health is in good shape, congratulations! If it can use a little work, at least you know where you need to concentrate your efforts. And remember to update your annual financial checkup at the same time next year to track your progress. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "401(k) Plans." Internal Revenue Service. "Individual Retirement Arrangements (IRAs)." Internal Revenue Service. "Publication 550: Investment Income and Expenses (Including Capital Gains and Losses)," Page 56. AnnualCreditReport.com. "Annual Credit Report." Internal Revenue Service. "Topic No. 502 Medical and Dental Expenses." HealthCare.gov. "Health Savings Account (HSA)."