Annual Financial Review – Make This a Can’t Miss Habit

One of the best things you can do is perform an annual financial review. Life is constantly changing, and sometimes it is difficult to keep up with everything. When it comes to your money, take the time to review your situation and make sure everything is in order. The small amount of time invested can provide a lifetime of benefits.

If you are like everyone else, you are constantly juggling a variety of responsibilities. If you don’t deal with certain aspects of your finances on a regular basis, it’s easy to have an”out of sight, out of mind” experience. Despite our busy lifestyles, all of us have to take charge of our financial fitness. It’s easy to overlook things, and people make mistakes. Even the slightest typo can be very costly! An annual financial review allows you to catch mistakes and correct them.

annual financial audit

Take the Time to Perform the Annual Financial Review

If you need help starting, I have a free checklist available that you can use. I recommend reviewing all of your important financial documents. Even if you are confident that nothing has changed, take the time to review the items and verify. One of the things i always stress is to review the beneficiaries on every account you own. Even if you haven’t changed anything, make sure your account custodian still has the right information.

Keep a close eye on any debts you owe, especially credit cards and other unsecured debt. Have your interest rates changed? Are you paying any annual fees or other charges that you weren’t aware of? I recommend reviewing every credit card statement on a monthly basis. In this day of credit card fraud and identity theft, you have to protect yourself. Make sure you always remain on guard.

One of the key areas I want you to focus on is your investment accounts. This would include brokerage accounts, 401K, 403B, 457, and IRA’s. When was the last time you did a complete audit of the account. Do you understand the basics on how these accounts work? Are you completely clear on what you are invested in? Since many people I work with have 401K accounts, I want to focus on them for a moment.

A Brief Overview of the 401K Account

Introduced in 1978, the 401K is often sold as a better alternative to a traditional defined pension plan. While the 401K is most common in the private sector, many new public employees are being introduced to similar arrangements. Most are under the impression that a 401K is the best possible vehicle to help them accumulate more savings for retirement. The 401K can be a very effective portion of a successful retirement plan, yet there are some drawbacks to consider as you determine your contributions.

Ultimately, the 401K is a way for companies to shift the risk of paying for retirement benefits to the employee. Under a traditional pension, retirees do not have to worry about market ups and downs, liquidity, and other issues in their account. They know they will receive a set amount every month and can budget appropriately. With the 401K, an employee must select investment options offered by their plan manager. This does exposes them to the cyclical nature and hype of Wall Street. It’s also possible that your 401K contains only limited options when it comes to selecting your investments.

Clearly Understand Everything in Your Retirement Accounts

You work way too hard for your money, so don’t overlook this critical part of your portfolio. A 401 K exposes you to the ups and downs of Wall Street. What is your attitude toward investing? Are you aggressive or conservative? Do the selections in your account match your values and overall views toward the markets? Do you understand how a mutual fund or an index fund works?

In working with clients, there are some common issues that come up regularly when it comes to evaluating their 401K accounts. My goal is to help you maximize your retirement and clearly understand what exactly is in your investments and where your money is going. Too many people contribute to their 401K and other investment accounts without clearly understanding where their money is going. This lack of clarity can lead to a disastrous outcome. All your retirement accounts should be part of your annual financial review.

Annual Financial Review – How Much are you Paying in Fees?

Certain funds can expose investors to very high fees. One recent poll indicates that only 27% of 401K account holders know how much they are being charged in fees. A 401K or a similar account may contain the majority of retirement savings, so it’s really important to understand the details. Everyone who has a retirement account should be clear on the fee structure. Lack of knowledge can cost you a fortune over the long run! Are the earnings in your 401K eroding due to unreasonable expenses? Do you know and understand all of the offerings within your plan? Are there better alternatives available?

annual financial review

401K withdrawals are taxable when you are eligible to access the funds penalty-free after age 59 ½. Unfortunately around 50% of Americans believe that these earnings are tax free! With so much confusion and misinformation, it’s important to understand the tax ramifications and understand what the optimal strategies are for your retirement. Unless you have a Roth IRA or other tax-free growth accounts, prepare to pay Uncle Sam his fair share.

Make Diversity Part of the Annual Financial Review

Diversification is absolutely vital for any successful investor. Many of you know horror stories of peoples’ accounts decimated by a market event or corporate deceit. Unfortunately, their portfolio consisted of only of company stock or other high risk investments. They may be nearing retirement and are still taking way too much risk. If properly managed and diversified, you can protect yourself against the inevitable market downturns. If you understand your plan and know exactly what assets you are investing in, you will have a strong defense against the types of risks that are inherent to the accounts.

Unfortunately, the vast majority of Americans are underfunded for retirement. Statistics show that younger generations are lagging behind on saving for the future. One of the ways to avoid this is to start as early as possible. Even if you get a late start, there is still time to catch up. I like to remind people that they may spend close to a third of their life in retirement. That is a long time and you deserve to enjoy those years. Your financial needs also change in older age, since any health and wellness issues may require more money.

Your Annual Financial Review Includes Your Goals

You can see how important it is to consider all aspects of your finances. All of us need to identify our major goals and build a plan to achieve them. A plan should also honor your investing needs and habits. Whether you are just starting your career or are approaching retirement, you need to understand your investment accounts clearly. If you need help starting, feel free to contact me to discuss your personal needs.

Remember, don’t ever approach your money with the “out of sight out of mind” mentality. Each dollar in your retirement accounts is just as important as the one in your wallet. An annual financial review helps you remain confident that you are on the right path. Understanding all your investments helps alleviate stress and uncertainty. Maximize your savings and minimizing your risk is a strategy that breeds success.

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