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The Annual Financial Plan Checklist, Episode #24 Thumbnail

The Annual Financial Plan Checklist, Episode #24

Financial planning is an always-evolving process as life changes and you receive new information. In this episode, we walk through a blueprint for what to cover in the annual “review” of your financial plan. From revisiting the big picture and your goals to checking in on cash flow and your investments, to keep up with changes to legislation and tax laws, by consistently following this process year in and year out, you’ll help ensure that your financial plan continues to evolve with your life and reflect what’s most important to you. 

Outline of this episode

  • Doing a high-level check-in [1:25]
  • Reviewing your month-to-month cash flow [3:54]
  • Checking progress towards your goals [5:26]
  • Looking at your investment allocation relative to your target investment plan [8:49]
  • Checking in on the recurring annual planning items [10:59]
  • Setting up a plan for the coming year and implementing adjustments [15:52]
  • Recap of the six-step process for your annual financial review [17:21]

High-level check-in and cash flow checkup

When you do your high-level check-in it's about revisiting your overall financial and life situation to recognize if anything has changed. This first step is often overlooked as people might not always take the time to sit back and look at the big picture. Have you been enjoying work on a day-to-day basis or does retirement sooner than later seem increasingly attractive? This review helps give a fresh understanding of what you're working and saving toward when it comes to your finances. By doing this exercise, you give yourself an honest assessment of what's important to you and what, if anything, has changed over the past year?

Next, you’ll want to look at your cash flow and how it feels each month. When we refer to cash flow, it's simply looking at the money you have coming in relative to what you are saving and spending. The reason we go through cash flow second is because of how important we feel it is to strike the right balance of saving enough for the future, but also enjoying things along the way. The goal here is to minimize the amount of stress finances cause and one of the biggest stressors is feeling tight or stretched meeting your day-to-day living expenses on a monthly basis.

Goal progress and investment allocation

Third, you'll want to review the progress toward your goals each year for a variety of reasons. The biggest is, one, a lot can happen in a year in terms of how your feelings toward goals change like suddenly wanting to retire early or finding out your kid was accepted to their dream school. And two, your investments and savings will fluctuate over time. So you want to understand if you need to make any adjustments as a result. So in this step review where you stand relative to your goals and then understand any adjustments you have to make so you can be comfortable with the trade-offs.

A big component of the changes that happen each year is the movement in your investment portfolio. Not every year will be as tame as 2020 with the casual 35% stock market decline and subsequent 80% run-up. Joking aside, this is another important area to periodically review to make sure that your investments are still aligned based on your goals. The other reason to check in each year with your investments is to decide if the investment mix is still right for you. This will change over time since the way you invest for retirement at 35 will be different than how you should invest at 60.

Recurring items, planning for the year ahead, and implementing adjustments

It's common to overlook the recurring financial planning areas but it’s important to review them each year to take advantage of any opportunities. Some of these planning areas include reviewing your employer benefit options, how much you're contributing to your retirement accounts, year-end tax planning opportunities, and any relevant opportunities or changes required as a result of new legislation or changes to tax policy.

The last area we'll touch on is implementing the areas that we discussed and setting a plan. It’s a lot to digest and you likely can't take care of everything all at once. It's helpful to list out everything you want or need to address over the coming year. The goal is to get everything listed on paper so you can break it down and address how to implement those items throughout the year. Doing this helps you stay organized and also makes the process more manageable by methodically working through your list over time.

Resources & People Mentioned

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