23 - Your Annual Financial Check-Up

Just like a medical physical, your finances need an annual check-up to stay healthy. In this episode, we provide a simple, step-by-step checklist for a yearly financial review. We'll guide you through reassessing your budget, reviewing your credit report, tracking your progress toward your goals, and auditing your subscriptions to find "leaks" in your spending. This is a proactive guide to keeping your financial plan on track.

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Transcript

23 | Your Annual Financial Check-Up

00:00:00 Daniel Hill: Okay, Shanna, we all know that feeling. You get that little postcard in the mail from your doctor's office reminding you that it's time for your annual physical.

00:00:12 Shanna Browning: Oh, yeah, I've got that, too. And even if you feel perfectly healthy, you go, you get your blood pressure checked, you get your standard test done, and you do it because it's a proactive way to make sure everything is on track and to catch any potential issues before they become big problems.

00:00:28 Daniel Hill: Exactly. We do it for our health. We do it for our cars with an annual inspection. We do it for our homes with yearly pest check. We're conditioned to understand the value of preventative maintenance in almost every area of our lives.

00:00:44 Shanna Browning: But how many of us take the same proactive approach with our financial health? I bet it's not many of us. And for most of us, the only time we do a deep dive into our finances is when there's a crisis, a job loss, a big, unexpected bill.

00:00:59 Daniel Hill: And that's what we want to change today. we're going to give you a simple, straightforward checklist for your own annual financial checkup to ensure that you're just as healthy financially as you are physically.

00:01:14 Shanna Browning: I like it.

00:01:24 Daniel Hill: Welcome back to Making Sense of your Cents. I'm Daniel Hill.

00:01:28 Shanna Browning: And I'm Shanna Browning, and today what we're talking about is the power of a yearly financial review. Now, not as complicated as it sounds, and it's really one of the most effective things you can do to stay on track with your goals.

00:01:42 Daniel Hill: And so what we've done is we've broken it down into a five part checklist that you can do in a single afternoon. We'll cover your cash flow, your credit, your goals, your safety net and those sneaky subscriptions.

00:01:57 Shanna Browning: Oh, they're out there. So let's start with the foundation, right. Our budget or what we earn versus what we spend. If someone created a budget at the start of the year, why do we need to review it?

00:02:09 Daniel Hill: Because, Shanna, life is not static. Your income may have changed. Your expenses have almost certainly changed thanks to inflation, and your priorities might be different. A budget that was created last January is likely out of date. An annual review is your chance to make sure your spending plan still reflects your current reality.

00:02:32 Shanna Browning: So almost like a New Year's resolution.

00:02:34 Daniel Hill: Exactly.

00:02:35 Shanna Browning: Start in January. So this is more than just checking if you're on a budget. It's about updating the map itself. And what are the keys to looking at.

00:02:44 Daniel Hill: Well I like to call this a cash flow analysis. First look at your income. Did you get a raise? Did your spouse change jobs? Did you start a side hustle? Get an accurate updated number for your average monthly take home pay. Take home pay is key.

00:03:04 Shanna Browning: And then there's the other side of that, right? There's the other ledger side that says your expenses. Right.

00:03:10 Daniel Hill: And you need to be honest here. Look at your big fixed expenses. Has your rent or your mortgage gone up? What about your car insurance or property taxes? Adjust those numbers. But the real insight comes from our variable categories like groceries and gas. Don't just look at what you budgeted. Look at what you actually spent over the last three months to get a realistic average.

00:03:39 Shanna Browning: And it's also a great time to calculate your savings rate, which is a powerful number.

00:03:44 Daniel Hill: Shanna, how do you calculate that?

00:03:46 Shanna Browning: Well it's simple. You take the total amount you saved and invested for the month. So your 401k contributions, your automatic transfer to savings. And you divide it by your gross which is pre-tax income. So if you earn five thousand a month gross income and you save a total of five hundred dollars. Your savings rate is ten percent. This one number is a truly fantastic indicator of your financial health. This is your checkup and so it a great time to ask yourself, am I happy with this number? Can I bump it up by one percent?

00:04:26 Daniel Hill: Okay, so once the cash flow is analyzed, what's the next part of our checkup, Shanna?

00:04:31 Shanna Browning: Ah, credit. That's the next part. So just like checking your blood pressure, you need to check your credit health at least once a year. This means two things that we've talked about before. But it's crucial to do them together. And that's pulling your credit report and checking your credit score.

00:04:50 Daniel Hill: So if you remember, we did a deep dive on this in episode thirteen. What's the quick summary?

00:04:57 Shanna Browning: Summary is quickly go to the official website annualcreditreport.com. That's the official website. And pull your full credit report from Equifax, Experian and TransUnion. They're going to be all in that one credit report. This is your chance to be your own personal detective. Read through every single line. Make sure you recognize all the accounts. Check your personal information and look for any errors.

00:05:25 Daniel Hill: And if you find an error and we did an episode on this, you dispute it.

00:05:31 Shanna Browning: Immediately. Dispute it immediately. An error on your credit report could be costing you real money. After you've reviewed reviewed your report, you check your score, which you can do for free through your bank or credit card. This gives you a vital sign. Is your score healthy? Has it gone up or has it gone down?

00:05:51 Daniel Hill: And if it's gone down, your checkup is the time to figure out why.

00:05:56 Shanna Browning: That's right. Why? Why did it go down? Did you miss a payment? Did you open a lot of new accounts recently? Or is there an error on your report that's dragging it down? The annual checkup isn't just about seeing the number. It's about understanding the story behind that number so you can take corrective action.

00:06:15 Daniel Hill: We want to fix it.

00:06:16 Shanna Browning: We want to fix it so our cash flow is clear. Our credit is checked. What's next Daniel.

00:06:23 Daniel Hill: Oh it's my favorite part. It's the goals. The goals! A financial plan without goals is like a road trip without a destination. Your annual checkup is the perfect time to review your progress and set your intentions for the year ahead. But we need to set goals the right way.

00:06:42 Shanna Browning: So you're talking about making them more than just vague wishes.

00:06:46 Daniel Hill: Exactly I am. And I'm talking about setting Smart goals. Smart goals as an acronym. It stands for specific, measurable, achievable, relevant, and Time Bound. S.M.A.R.T.

00:07:03 Shanna Browning: I like it. Can you give me an example, please? Like a bad goal versus a Smart goal.

00:07:08 Daniel Hill: Okay, here you go. A bad goal. I want to save money. We've heard it. We've all heard.

00:07:15 Daniel Hill & Shanna Browning: It. I want to say, what's your goal?

00:07:16 Daniel Hill: Oh, I'm going to save money. It's not specific or measurable. A Smart goal is specific. I want to save three thousand dollars for a down payment on a new car. Measurable. Three thousand. Achievable. I can do this by saving two hundred and fifty dollars a month. Relevant. My car is getting old, so this is an important goal. And time bound. I will achieve this goal in twelve months.

00:07:47 Shanna Browning: Man, what an acronym. I like that. So it's much, much more powerful. It's an actual plan.

00:07:54 Daniel Hill: It is. So during your checkup, review your goals, celebrate your wins, and then set two to three new Smart goals for the year ahead. Write them down, put them somewhere you'll see them, and it turns a vague financial hope into a concrete plan. Now, Shanna, there are two more quick but critical checks that people often forget and I call it the safety net audit.

00:08:21 Shanna Browning: And what's that involve?

00:08:24 Daniel Hill: Well, the first is your beneficiary audit. This is so important. You need to log in to your 401k your IRAs, any life insurance policies you have and check to see who is listed as your beneficiary.

00:08:38 Shanna Browning: Man life changes can make these dangerously out of date.

00:08:42 Daniel Hill: They they really can. And if you've gotten married, divorced, had a child, or experienced the loss of a loved one, your listed beneficiaries might not reflect your current wishes. An ex spouse could be still listed on an old 401k, for example. This is a five minute check that can prevent a massive headache and heartache for your family down the road.

00:09:06 Shanna Browning: So if an ex spouse is on a 401k, that means the new spouse may not get the 401k.

00:09:12 Daniel Hill: Exactly.

00:09:13 Shanna Browning: Is that what I'm hearing?

00:09:14 Daniel Hill & Shanna Browning: Yes.

00:09:14 Shanna Browning: All right. Fantastic point. What's the other safety net check?

00:09:19 Daniel Hill: Well, do a quick insurance review. You don't have to be an expert. Just ask yourself a few simple questions. Does your homeowner or renters insurance cover still reflect the value of your possessions? If you bought expensive jewelry or electronics this year, you might need a separate rider to cover them. Is your life insurance covered still adequate, especially if you had a new child? It's just a quick sanity check to make sure your safety net is still strong. And that brings us to our last checkpoint and to this week's actionable tip. It's a task that can often have the most immediate and satisfying impact on your monthly budget.

00:10:09 Shanna Browning: So you're talking about that subscription audit, which in today's world, our finances are slowly being drained by dozen little recurring charges that we often forget we even have, right? We did a free, free trial. Seven days free trial.

00:10:23 Daniel Hill: They're like little

00:10:24 Daniel Hill & Shanna Browning: Leeches.

00:10:25 Shanna Browning: Then you realize you forgot that seven day free trial.

00:10:27 Daniel Hill: And it turns into a fifteen dollars monthly expense.

00:10:30 Daniel Hill & Shanna Browning: That's right.

00:10:31 Daniel Hill: Your action item this week is to print out your last bank statement, or a couple recent credit card statements, and grab a highlighter.

00:10:39 Shanna Browning: And your mission is to go through there line by line and highlight every single recurring subscription charge. This includes streaming services, music services, gym membership, subscription boxes, software subscriptions, and app store charges.

00:10:55 Daniel Hill & Shanna Browning: There's a lot.

00:10:57 Daniel Hill: And it's so important because you can find some subscribing things. I did this myself a few months ago and realized I was paying for my Hulu streaming subscription twice now.

00:11:08 Shanna Browning: Daniel, how'd you do that?

00:11:10 Daniel Hill: I had signed up directly with Hulu years ago, and then later bundled it with another service and completely forgot about the original subscription fare. It was a small charge, but it had been hitting my card every month for over a year. Well, it only took a few minutes on the phone to get it sorted out, but it's money I never would have gotten back if I hadn't done the audit.

00:11:30 Shanna Browning: Well, and it's a great example, right? Perfect example. It's not about cancelling. Sometimes it's about finding errors. So once you have your list for each highlighted item, you have to ask yourself the tough, tough question. Did I get enough value from this in the last month to justify the cost? And this is you talking to you. Be honest with yourself.

00:11:51 Daniel Hill: And your challenge and it is a challenge, is to take action on at least one of them. If you haven't used a service in months, cancel it. You can always sign up later if you miss it. If it's a service you feel you use but you're overpaying for like a cable or a cell phone bill, make the call to their customer service department and ask if you're on the best plan.

00:12:15 Shanna Browning: Because this is your money and the single action can often find you twenty dollars, fifty dollars or even more in your monthly budget. And it's one of the quickest ways to give yourself an instant raise, and is the perfect final step for your annual checkup.

00:12:32 Daniel Hill: Shanna, it has been so great walking through this checklist with you. It's the kind of maintenance that prevents major breakdowns.

00:12:39 Shanna Browning: I totally agree. Daniel. Join us next week for another very important topic banking for seniors, where we'll discuss protecting your finances in retirement. Thank you again for listening. I'm Shanna Browning.

00:12:53 Daniel Hill: And I'm Daniel Hill. Thanks for making us a part of your week. And go out and make some sense of your cents.