2022: Annual Financial Review

*Scroll down for the 7-step guide*

One thing I’ve noticed as I study the mindset secrets of millionaires and billionaires is that they always have a plan, and they always set goals. Very clear plans and very specific goals. The ultra-rich don’t just leave things up to chance, fate or luck. They also know exactly what’s going on with their money, even if they’re not managing it directly and hire a financial professional to manage their money for them.

Unfortunately, our own personal finances can often feel like a scary black box: let me tell you, the wealthy do not think this way about their money, and neither should we.

I was watching an interview with Jay Shetty (an inspiring “urban monk” YouTube influencer and author with an estimated net worth of $4 million) awhile back, and he said something really profound: Jay said he can tell what his priorities are based on 1) how he spends his time and 2) how he spends his money. He said he sits down several times each week and reviews both of these things, to make sure the ways he’s spending his time and money are on track with where he wants to be in life, or if he needs to make some changes.

Jay’s advice is something I’ve tried to implement, especially in my personal finances as it brings so much clarity. What’s the point of keeping detailed monthly budgets if we don’t stop and reflect on them? Where’s our money going? Is it going the directions we want it to, or is it leaking out all over the place and not really working for us/actively sabotaging our financial goals? Ideally we’d make the time to reflect on our spending and saving habits at least weekly, but if not then the end of the month or the end of each year is ideal because we have a lot of data to work with. What went well during that period? Did we have some wins? Some losses? What do we need to do differently to keep on track with our goals?

If you’re not in a position to hire a financial advisor right now it’s absolutely fine, as you can learn the skills you need to get really good at managing money. I’m all for hiring qualified professionals to help us succeed, so of course if this is an option for you then go for it. If you’re doing a year-end financial review yourself, here are some questions to ask as you look over the data you’ve collected this year from your monthly budgets.

The 7-Step Annual Financial Review Guide

1. What’s my current net worth?

• Money in the bank minus any balances on credit cards = cash assets

• Equity in my home(s) (Zillow will give you an estimate of the current market value if you search your address, subtract what’s left on your mortgage to get your equity) = real estate assets

• Any other valuable assets I could sell if I absolutely had to in a pinch

• Add these up for current net worth

• Make sure I have strong passwords and 2-factor authentication set up on all my banking and investment accounts

2. What outstanding loans do I have?

• Add up everything except the mortgage: car loans, RV/boat loans, student loans, etc. to get the total

3. What is my credit score?

• I check my credit score regularly and review my full credit report at least once per year

• I make sure all adults in my household have a free credit freeze set at all three credit bureaus (click here to freeze at each one: Equifax/TransUnion/Experian)

4. Am I carrying enough of the right kinds of insurance? Double-check that all current insurance policies are active and premiums are getting paid on-time

• Life insurance, to provide for my loved ones if I (God forbid) passed away unexpectedly

• Disability insurance, to keep income coming in if I was injured and had to be off work for an extended period of time while recovering

• Auto insurance, to both cover myself and my family in an accident and to cover bills for injuries to others if I’m responsible for the accident. Have I printed out updated proof of insurance and put it in the glove boxes of all my cars?

• Property insurance, to cover the possessions in my rental (renters insurance) or my possessions and the actual structure of my home (homeowners insurance) against things like fire, flood, etc. Also includes the option for coverage if someone slips on my sidewalk and decides to sue me

• Umbrella insurance, to provide an extra “umbrella” of protection against lawsuits against myself or my family, and to cover any of my legal costs relating to those lawsuits

• Small business insurance, if I’m a business owner

• Insurance policies on any boats/RVs/other toys I own, and policies on any ultra-valuable jewelry/artwork/collectibles I own (called Valuable Personal Property insurance)

5. Do I have an estate plan, and if so does it need updating?

• Estate plans include my will, my healthcare proxy, my end-of-life wishes, and so on. To formalize this I may wish to set up a living trust with an estate attorney, which typically involves several meetings and the cost of about $3,000 in attorney fees. If I already have a trust, I keep it updated as-needed with my attorney

6. Does my investment portfolio need rebalancing?

• I keep a close eye on my investments throughout the year, and seek advice from a trustworthy investment advisor/investment resources should I need to update my portfolio to reflect changes in the markets and the economy

7. Am I happy with where my finances are right now?

• Do I have more assets than debt, or am I carrying too much debt relative to my income, lifestyle, and expenses?

• Do I need to make changes in the coming year? If so, where do I need to tweak my budget? Do I need to spend less on certain things? Stop taking on new debt? Learn some new financial skills? Figure out how to make more money?

I hope you enjoyed my annual financial review process, and that it’s helpful as you do your own review for 2022! If you enjoyed this post, please come subscribe to my newsletter, Millionaire Mindset Secrets.