The 10-Point Financial Checkup Every Family Should Complete Each Year

Most families don't need a completely new financial plan every January.

They do need to make sure the old one still reflects their life.

Income changes.

Children are born.

People get married.

Mortgages decline.

Businesses grow.

Insurance policies age.

Investment accounts accumulate.

Tax laws change.

Beneficiaries remain untouched for ten years.

That is how financial plans become outdated without anyone realizing it.

We recommend thinking of an annual financial review like preventative maintenance.

Here are ten areas worth checking.

1. Emergency Liquidity

How much money is readily accessible if something unexpected happens?

That amount should reflect your actual household.

A dual-income family with highly stable employment may have different liquidity needs from a self-employed household whose income fluctuates dramatically.

The point is not to blindly follow a universal three- or six-month rule.

It is to understand:

How long could we maintain the household if income suddenly stopped?

2. Household Debt

List every liability.

Mortgage.

Vehicles.

Credit cards.

Student loans.

Personal loans.

Business guarantees.

Then evaluate not only balances but interest rates and cash-flow burden.

A $10,000 liability at a high interest rate may deserve more attention than a much larger low-rate mortgage.

3. Life Insurance

Ask:

Has income increased?

Have we purchased a larger home?

Had children?

Started a business?

Accumulated enough assets that less insurance is now required?

Life insurance needs are not necessarily static.

Existing policies should also be reviewed for:

• beneficiaries,
• ownership,
• term expiration,
• policy performance,
• and whether the original purpose still exists.

4. Disability and Income Protection

Most financial plans assume the person continues earning income until retirement.

What happens if they don't?

Death isn't the only event capable of eliminating earnings.

A financial review should examine the economic consequences of extended illness or disability as well.

5. Retirement Progress

Don't only ask:

“Did the account go up?”

Ask:

Are contributions sufficient?

Has income changed?

Has the retirement date changed?

Is the asset allocation still appropriate?

Are employer benefits being utilized?

What retirement income is the household currently projected to need?

Retirement planning should connect today's savings rate with tomorrow's income requirement.

6. Investment Allocation

Investment portfolios naturally drift.

A portfolio originally designed around a particular risk level can become substantially different after several years of market movement.

An annual review is an opportunity to evaluate:

• diversification,
• concentration,
• risk tolerance,
• time horizon,
• and whether major holdings still serve the intended objective.

7. Beneficiary Designations

This deserves more attention than it usually receives.

Major life events can make old beneficiary selections inappropriate.

Review beneficiaries on:

• life insurance,
• retirement accounts,
• annuities,
• and other beneficiary-designated assets.

The NAIC specifically encourages consumers to maintain current beneficiary information on life insurance policies. NAIC

Marriage, divorce, deaths and births are obvious reasons to review them.

But waiting for a major life event isn't necessary.

A simple annual check can prevent an old designation from becoming a future family problem.

8. Estate Documents

Do you have appropriate:

• wills,
• powers of attorney,
• healthcare directives,
• trusts where applicable,
• guardianship provisions,
• or business succession documents?

More importantly:

Do those documents still reflect what you want?

Financial professionals should coordinate these questions with qualified estate-planning attorneys.

9. Insurance Across the Entire Household

A comprehensive protection review shouldn't stop with life insurance.

Depending upon the household, relevant exposures may include:

• health insurance,
• Medicare,
• disability,
• long-term care,
• homeowners,
• auto,
• umbrella liability,
• business insurance,
• and other specialized coverage.

This is where siloed advice often creates problems.

The life agent reviews life insurance.

The investment advisor reviews investments.

The P&C agent reviews the house.

The CPA reviews taxes.

Each professional may do their individual job correctly.

But somebody still needs to ask:

Is there a major risk nobody has addressed?

10. The Household's Biggest Financial Risk

Finally, ask one open-ended question:

What financial event could hurt us the most right now?

For a young family, it may be the death or disability of a parent.

For a business owner, it could be concentration in the company.

For a retiree, it might be longevity or a major market decline.

For another family, it might be healthcare, debt or inadequate savings.

This question keeps financial planning from becoming a checklist exercise.

Financial Planning Is Not About Owning the Most Products

A household can have:

• four insurance policies,
• three retirement accounts,
• a brokerage account,
• an attorney,
• a CPA,
• and an excellent credit score,

and still have serious financial gaps.

Financial planning is about whether those pieces work together.

An annual checkup gives you an opportunity to find the gaps while they are still planning problems rather than financial emergencies.