Conducting a financial checkup

Most experts suggest you conduct a regular personal financial checkup on an annual basis or after a major life event. It's important to follow a system when reviewing your finances to make sure you don't leave anything out or miss something critical to your financial well-being. Here are the main topics you should cover when conducting a financial checkup.

Financial goals are simply financial targets with a plan in place to reach them. Building a retirement fund is one example of a financial goal. Others include creating an emergency fund, saving up for a down payment on a car or house, or anything else that requires money you don't already have. Evaluate your progress toward financial goals and adjust as needed. Once you achieve a goal, cross it off the list and replace it with another.

Your budget is a blueprint for how you handle income and expenses on a recurring basis. A budget should be monitored (and adjusted) monthly. The idea is to make sure you have enough income to cover all expenses and still leave funds to meet your financial goals. You can maintain your budget with pencil and paper, using a computer spreadsheet, or with one of many available free or inexpensive budget software.

Review your progress in paying down all debt, including loans and credit cards. If your debt is rising, especially credit card debt, it might be time to adjust spending so that those balances start to decline again. Two popular ways to reduce debt are the snowball method and the avalanche method. Evaluate interest rates on everything from your mortgage to your car loan to credit cards. Consider refinancing or switching to another credit card with a lower rate.

As part of your financial checkup, evaluate your contributions to your company. Make sure you are maxing out any employer match. Consider taking out a traditional or Roth IRA. The advantage of a Roth IRA is the tax diversification that comes with tax-free withdrawals upon retirement. Evaluate returns on your investments and rebalance your portfolio as needed. Consider your changing risk tolerance – both as you age and as the market becomes more (or less) volatile. Experts generally agree that your goal should be to put at least 15 per cent of your pretax income into retirement savings.

Review your progress toward other savings goals such as an emergency fund that covers between 30 and 90 days of living expenses, college savings funds (529 or Coverdell ESAs), or vacation fund. If you had to dip into your emergency fund for house or car repair, plan to replace those funds as quickly as possible. In addition, check available interest rates to make sure your savings are going into the highest-yielding accounts possible.

The Internal Revenue Service (IRS) suggests that taxpayers conduct a Paycheck Checkup using its withholding calculator and make changes to withholding (W4) if called for.

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