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5 Personal Finance Items to Evaluate at Least Once a Year

When was the last time you took inventory of your personal finances? It’s easy to get things set in place and then just ignore them. Who really wants to continually review all the facets of personal finance anyway? It takes so much time.

personal finance checklistWell, here is the thing – the pace of life is fast. Because of that, it’s easy to let things slip by. When it comes to our money, we may be missing out on opportunities to improve on the things we have in place and save money in the process.

And in the grand scheme of things, it doesn’t take as much time as you think to do a thorough review. It will be worth it compared to the consequences that might come should you miss something important.

The idea of taking inventory of your financial life is not new. King Solomon in the Bible was the wisest man who ever lived.  In the book of Proverbs he wrote this:

“Be diligent to know the state of your flocks, and attend to your herds; for riches are not forever, nor does a crown endure to all generations.” (Prov. 27:23-24)

We cannot assume just because something was once a good deal, investment or financial goal that it will continue to be so. Our life circumstances change so we should be on the cutting edge of awareness about these matters.

Your Yearly Personal Finance Review

Here are five key areas of our personal finances that my wife and I review at least once a year:

Spending Habits

Hopefully you are paying attention to this one more than once a year. If you are diligently planning a monthly budget this is probably a weekly ritual. However, because it’s easy to get caught up in the day-to-day budget numbers, we can lose sight of the bigger yearly picture.

It’s a valuable exercise to accumulate all the numbers from your monthly budgets and calculate each individual spending category as a percentage of your yearly budget. You can use these calculations to plan for next year and adjust your spending based on your needs.

Or maybe you need to examine the types of spending categories you have. Do they need to be more specific to give you better clarity? If you need help with that, here is a great budget template resource you can access for free.

Investments

This is broad category that includes stock investments, retirement plans and housing values among other things.

For investments, you will want to check on things like your mutual funds rate of return for the year. Also be aware of your funds expenses. How much did they eat into your return? Pay attention to management changes as a change in management could mean a change in philosophy or stock picking strategy for that particular fund.

Also make sure to see if your portfolio positions have become too large. You may need to re-balance them to get back in line with your investment strategy.

Insurance

This is one I always overlook. It’s easy to get locked in to an insurance company because they just keep sending you the renewal forms. When I receive one in the mail, it’s easier to write a check to renew the policy than it is to research if something better is available in the market.

Insurance policies and rates are always changing. New products and services are always coming on the market. The last time I shopped insurance, I found an option that allowed me to group all my insurances into one policy. The insurance company offered me more benefits at a lower cost because I bundled all my policies together.

So review your auto, homeowners, and life insurance policies. Also be aware of updates to your health insurance premiums.

And consider whether it’s that time of life to consider liability or disability insurance or an umbrella policy to serve as extra insurance in case you get sued. If you are over 60, you might also need to consider long-term care insurance. All these are questions that need your attention.

Wills

I think most people avoid this one also because nobody likes to think about death, especially their own.

Furthermore, the will is an out-of-sight-out-of-mind document. It’s not like the budget reports you see in Quicken or on your Excel spreadsheet each month. Typically, we put the will in the fire safe or safety deposit box at the bank and forget about it. Because it’s out of sight, we forget to update it when big life events happen (like that new baby who comes into the family).

In your will, you will want to make sure the executor is still a person who can perform the legal duties associated with the estate. Also check on the individuals, charities or organizations that will be beneficiaries of your assets. Are they still people or institutions you’d be OK leaving some of your inheritance?

If you have children, reevaluate who will be their long-term care providers. Also review if, how and when your children should receive any inheritance benefits.

Finally, check the will for ambiguous details or surprises that might confuse your relatives or lead to conflict once you are gone. The clearer you can make the details now the better off your loved ones will be.

Financial Goals

Goals provide clarity and direction. Unfortunately, the ones we make are often too broad, fuzzy or generic. In the end, they really don’t help motivate us to change. Clear, realistic, and well-defined goals are a must for us to have success in life.

Personal finance goals should be no different. But they will vary based on individual circumstances. As you evaluate your personal finances, consider how you might try to meet some of these objectives:

As I see it, these are the five big personal finance items to evaluate at least once a year. You can either do them all at once at the end of the year or space them out by doing one area every 2 months or so. Either way, don’t let another year slip by without taking charge of your finances.

Questions for Discussion: What other personal finance items do you review on a yearly basis? What’s the once you usually forget to look at? Why do you think so many people avoid making or reviewing their will?

Image at FreeDigitalPhotos.net

Article updated from original publication in December, 2012

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Comments

  1. These are great tips, Brian! I agree that reviewing your policies should be done annually in order to be familiar with the recent changes, especially with long term care insurance. There were premiums hikes last year, which caused panic among policyholders. They shouldn’t panic because not all agencies imposed price hikes and if they did, companies provided different options like policy adjustments, so that you can keep your policy. Long term care insurance is still a beneficial insurance product especially now that more people will age and will require long term care.
    Timothy Greene recently posted…The Real Deal with Long Term Care InsuranceMy Profile

  2. I assess my spending habit almost everyday, Brian. I am glad that I have learned good spending habits because these have enabled me to save much more and get the value of my money.
    Jamie recently posted…How Different-Sized Businesses Benefit from Video ConferencingMy Profile

  3. Excellent advice. Recently did an spending audit after a couple of years and was able to close up some holes that were eating up some money. Increased my monthly income easily!

  4. Great advice. I’ve seen it said that you should actually consider taking a full day off of work just to dedicate time to these types of items.
    Money Beagle recently posted…Now I Can Love Over 100 Libraries!My Profile

  5. I also review my job and salary to see if I could earn more, or work less, or find a better opportunity.

  6. John S @ Frugal Rules says:

    Good post. We do many of these ourselves semi-annually, if not annually. We also review our budget (which you touched on in #1) annually. We look at how we did for the year and what changes need to be made, if any. We’ve been on a budget for about ten years now, so thankfully it’s a pretty streamlined process.

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