Annual financial reviews help you build a solid foundation.

Despite all of the resources and financial opportunities available today, life in the 21st Century offers many challenges. Fortunately, there are many financial strategies that can help you reach both your short- and long-term goals. Your WPA agent can help you find your way through the maze of opportunities as you review your financial situation, plan for your goals, and make adjustments along the way.

Most of us have a financial strategy in place, whether formal or informal, that should be reviewed on a regular basis, at least annually. As an advisor once told me, even if you have no plan in place, you still have a plan. For example, you may have a budget and save for special short-term goals, such as a vacation or Christmas spending. Or, you may examine your retirement strategies from time to time. Whether planning your budget for paying regular bills, preparing your income tax return or analyzing your retirement options, you frequently look at aspects of your finances on a regular basis. Once each year, however, you should pull all your records together and take a closer look at your entire financial picture.

Here are a few things to consider when performing your annual review:

1. Analyze your cash flow. Does your income exceed your expenses? If so, you have what is called a positive cash flow. If not, you have a negative cash flow, and it may be time to review your spending, reorganize your budget and look for ways to minimize or eliminate unnecessary spending. When running this analysis ourselves, my wife and I found that we were spending way too much on takeout food–over $1,000 in pizza delivery alone–and made the decision to reduce our expenditures in this area for the coming year.

2. Provide for special goals. Do you have a specific short-term goal in mind, such as a wedding, vacation,  new car or home improvement project? Figure out how much you want to save towards that goal and divide it by how many months until needed and build that amount into your budget.

3. Save enough for retirement. Many planners say that you’ll need 60 to 75 percent of your pre-retirement income to provide for a comfortable retirement. Analyze your projected Social Security and existing pensions and if there is a shortfall, consider making up that difference with additional personal savings.

4. Minimize the impact of taxes. Seek out ways to minimize your income tax liability by adding to your 401K or IRA on a regular basis. For your long-term personal savings, consider using tax-deferred accounts, such as annuities, for tax-deferred growth. WPA’s “High Five” annuity is currently earning 3 percent and the “Penn Preferred” is earning 3.5 percent. Earnings within the annuity are not taxed until withdrawn. Consult your tax advisor and WPA agent to gain a better understanding of the benefits of tax-deferred annuities.

5. Stay ahead of inflation. In order to maintain your purchasing power, your savings rate has to keep pace with inflation. If inflation is growing at 2 percent and your savings is earning only 1 percent, you are losing purchasing power each year.

6. Manage risk. We all know that life involves risk, and we should make every effort to reduce risk wherever possible. We have health insurance to cover health risks, auto and homeowners insurance to cover property and liability risks, disability income policies to provide income should we become disabled and can’t work, and, of course, life insurance to provide for the completion of our plans should we die prematurely. As I have said in previous articles, life insurance should be the foundation upon which all your plans are built.

I hope this helps, but as with all planning, you should always prioritize your goals to ensure you are addressing your most important goals first. Most importantly, all plans should include an “emergency fund” of at least three months of income to handle life’s unexpected emergencies.

These six steps will help you stay on track with the most important issues that impact your finances and planning goals. As you review your own situation on a regular basis, you may need to make changes as your goals and circumstances change. Keeping track of your progress in these six areas will help you both afford your current dreams and finance a comfortable retirement.

Now is a great time to call your WPA agent to schedule your annual planning session. Don’t have an agent? Call our Home Office and we’ll be happy to assign one to you.