Every year, at roughly this time, financial planners and wealth management professionals encourage clients to sit down and undertake a thorough review of the year past.
An annual review of your financial goals, as well as the progress made in attaining them, is a cornerstone of responsible financial planning. It provides a timely reminder of the reasons why you are saving and investing. It enables you to tweak your financial plan based on any setbacks or accelerate your ambitions to keep pace with career advancements.
The end of the year is an opportune time to take stock of the past 12 months, review any change of circumstance and refocus yourself on the year to come.
While it is certainly possible to do this alone – and indeed I would recommend that at least twice a year you conduct a mini-review of your process – when it comes to your personal year-end audit and evaluation this is best achieved with the help of a financial planner.
Whichever route you follow, there are some questions that should definitely be on your checklist. Let’s run through a few.
Has Covid-19 Impacted Your Financial Goals?
In early 2021 the Pew Research Center released insights which showed that about half of non-retired adults in the US felt the long-term impact of the Covid-19 pandemic would make it harder to achieve their financial ambitions. Hardest hit among those surveyed were individuals in lower-income jobs and minorities.
Conversely, the survey showed that for Americans in the upper income bracket, the pandemic had not negatively impacted their financial situation. If anything, they were better off than the previous year. Furthermore, upper-income individuals were also “more likely than those with middle or lower incomes to say they have been spending less and saving more money since the coronavirus outbreak began”, noted the research.
For some, this means that an annual review might mean you have exceeded your savings goals and have more tucked away. For others, it may require prioritizing some goals over others. Irrespective of the ins and outs of your personal balance sheet, ensuring financial peace of mind and achievable milestones is critical to keeping you focused on your financial goals. So, I recommend paying careful attention to the following:
- Retirement savings – According to the Federal Reserve, 48% of non-retired adults have some retirement savings, but none in a retirement account. While 33% have opened an Individual Retirement Account, 21% have a defined benefit pension and 54% have a defined contribution plan such as a 401(k) or 403(b). Yet only 36% of non-retirees feel their retirement savings are going according to plan. To assess where you currently stand, ask your financial planner for a projection of your current savings to help calculate if you need to up your game.
- Tax and your investment portfolio – Take time to discuss any asset sales you made over the past year or any you may be considering in the year to come so your financial planner can factor capital gains tax into the mix. Also take the opportunity to consider the current balance of assets in your investment portfolio.
- Pay down debt – If you can, keep working towards the goal of being debt-free by the age of 65. That means getting mortgage loans paid off as early as possible, as well as freeing yourself from credit card debt and student loans.
- Open a 529 college savings plan – If you have children or grandchildren, and if you haven’t already, speak to your financial planner about how to leverage tax deductions while transferring wealth to the next generation.
- Emergency funds – Since the Federal Reserve believes that about 46% of Americans would battle to come up with $400 to cover an unexpected emergency, it is important to build up an emergency savings buffer. Why not set up an automatic transfer on the same day each month to build up an emergencies-only nest egg?
- Revising your current budget – Taking into account rising healthcare and education costs, as well as your current income and expenses, get out the spreadsheet and rework your existing budget into one fit for purpose for the year to come.
Is Your Career Keeping Pace with Your Goals?
Your career, and achieving success in your chosen profession, is not distinct or separate from your long-term financial goals. The two are intrinsically intertwined.
Not only does your career produce the financial fuel you need to achieve your wealth ambitions over time, but it provides the thrust that gets you up in the morning by providing a sense of purpose and, one hopes, deep personal satisfaction. There are, however, very real financial implications of progressing in your career which you should discuss with a professional. These include:
- How a pay increase can actually see you taking less home each month?
- How you could be taking greater advantage of workplace benefits, from medical insurance and disability insurance to cafeteria plans, remote work arrangements and day care assistance?
- How to take advantage of employee stock options?
If you are achieving all your financial goals, but you don’t find fulfilment in your career, then your annual review is an opportunity to assess your professional direction in tandem with your financial needs, responsibilities and dreams. For this purpose, I often suggest bringing in a career counselor to balance the advice you are receiving from your financial planner.
How Would You Rate Your Fitness?
No. Not your financial fitness (although that’s always important). Your wellness.
I am a vocal proponent of treating your health as an essential part of your financial plan. Yes, you can and should be saving for unexpected healthcare needs using a Health Savings Account, if you are eligible. And absolutely you should buy a health insurance plan fit for your needs. But there is no substitute for giving your mind and body the rest and support it needs to operate at optimum.
That means healthy eating, regular exercise, making smart lifestyle choices, taking time to enjoy hobbies and pursuits, and taking time out by scheduling regular holidays, catch-up sessions with friends or even a day in the spa (or on the golf course).
As you take time to assess your financial goals and recalibrate them for the year to come, don’t forget to run through your wellness goals. After all, when you make the right choices for your mind, body and spirit, you make it that bit easier to reach your financial goals.
Seek Support with Forging Your New Path
Ideally, by the time you’ve completed your annual financial review you should have a very clear idea of the milestones you aim to reach over the next 12 months, and how these individual daily, weekly and monthly goals fit into your bigger financial plan.
If you need help crafting your financial goals, or would like to make time to conduct an annual review, then I invite you to get the new year off the right start by scheduling a meeting today.
Investment advisory services offered through Equita Financial Network, Inc. (“Equita”). Equita also markets investment advisory services under the name Method Financial Planning, LLC. The foregoing content reflects the opinions of the author(s) and is subject to change at any time without notice.
Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.