Spring cleaning presents a great opportunity to clear out any items you no longer need—and the same goes for your finances. Checking in with your finances during tax season may be particularly beneficial, as it allows you to complete last year’s taxes while making any changes you need to potentially improve next year’s tax situation. Below, we discuss what’s included in a financial review and how such a review can help you spring clean your finances.
What is a Financial Review?
Just as you’d check your navigation system occasionally when traveling on a long trip, it’s important to periodically review your finances to ensure you’re on the correct path and focusing on the objective. This is what a financial review entails—it assesses where you are now, where you’d like to be, and what steps you may need to take to get there.
During a financial review, answer the following questions:
- What are your financial goals?
- What progress have you made on these goals in the last year?
- What progress would you like to make on these goals in the upcoming year?
- Have your goals shifted?
- Has your personal situation changed?
- Do you anticipate any major personal changes (such as marriage, divorce, a new job, a new child, or a home purchase or sale) in the near future?
The answers to these questions may influence everything from what types of insurance you should have to how much you may wish to save for retirement.
Benefits of an Annual Financial Review
Keeping a sharp eye on your finances with this periodic checkup may help you remain financially nimble, quickly adapting to any potential complications that come your way.
Monitor your investment performance and make any changes needed.
By calculating the annual return on your invested funds and comparing them to your target asset allocation, you may be able to determine whether your investments are on track or underperforming. Tax time may be a good time to reconsider any funds that just aren’t keeping up with your targets for some people.
You can adapt to changes in your personal situation.
If you’ve had any major personal changes, reviewing your finances may help you ensure that you’re carrying adequate insurance coverage, appropriately budgeting for major expenses, and taking any other necessary steps to preserve your financial future.
Investigate ways to manage your monthly expenses.
In some situations, a financial review may reveal that you have one or more loans or lines of credit you could refinance to potentially save money. You may also review your subscription services, cutting out any that you no longer use and reducing your monthly outflow.
You may be able to manage your taxes.
By conducting your financial review around the same time you’re preparing and filing your taxes, you may be able to spot any changes you may wish to make now to manage your taxable income for the current tax year. For example, you may be able to contribute more to your 401(k) or traditional IRA to manage your taxable income and overall tax rate.