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Money Management

Developing an Annual Financial Checkup

December 23, 2006

Many of us maintain a regular schedule of oil changes and maintenance on our vehicle ensuring it remains in good working order. A vehicle’s average life span is about 15 years. Our financial situation remains with us for our entire adult life, yet few of us take the time necessary to do a maintenance check.

Here are some suggestions for doing an Annual Financial Checkup:

  1. Pick an annual date that works for you (and your spouse). I recommend a birthday, anniversary or some other day that can be remembered. Plan to spend a good hour or two working through your checklist. Plan a reward (e.g. watching your favorite movie, going out for dinner, etc.) once you have completed your financial checkup.
  2. List or take note of the major changes that occurred in your life in the past year. Changes such as having a baby, career change and retirement are obvious.
  3. List or check your short, mid and long term goals. Have they changed? Are you on pace to achieve your goals?
  4. How have the major changes in your life and goals affected the following areas?

• Budget • Life insurance
• Disability insurance • Retirement planning
• Estate planning

Let’s take a look at a checkup for a fictional couple, Joe and Mary. Joe and Mary have planned December 1 as their Financial Check Up day. As their reward, they have decided that once their financial check up is complete, they will get a babysitter and go out for dinner at their favorite restaurant.

Joe and Mary were blessed with a baby, Precious in the past year; a major life change. Mary is currently on maternity leave and she would like to stay home full time with Precious.

Joe & Mary listed their financial goals. In the short term, they would like to check if they could make it on one income and buy a minivan to accommodate Precious. Mid term goals include starting to save for Precious’ post secondary education, and long-term goals include paying off their mortgage and saving for retirement.

Joe & Mary worked through their budget. Based on Joe’s income alone, they determined that finances would be a bit tight. Mary’s employer had indicated that she could do some contract work at home, earning at minimum $300 per month. Joe & Mary discussed buying a minivan, but decided to put it off for a year while trying to save for an adequate down payment. They agreed that Mary’s part time income would be deposited directly into their savings account to save for the down payment on a van.

With Precious, Joe and Mary agreed that they needed to check on their life insurance coverage and update their will. Joe agreed to contact their financial planner to work through a life insurance needs analysis. Mary agreed to contact their lawyer to update their will and have Mary’s sister named as guardian for Precious.

Joe is hoping for a job promotion and corresponding increase in salary in the next year and when that occurs, they plan to use the extra income to set up a Registered Educational Savings Plan for Precious. They are on pace to pay off their mortgage in 15 years. Regarding retirement saving, Joe contributes monthly through a pension plan at work and they have a preauthorized chequing (PAC) transfer of $150 monthly from their account at the Christian Credit Union to Mary’s spousal RRSP. Based on their budget, they determined that they could not increase their RRSP PAC plan this year.

As you can see, having a formalized financial check up will put you on a better footing with regards to achieving financial goals and help with peace of mind.

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