Annual Financial Checkup
Annual Financial Checkup
Happy New Year! It’s hard to believe the holiday season has come and gone and now we’re gearing up for 2022.
Jonathan and I released Episode 358 of the ChooseFI podcast yesterday and even though we titled it the “Getting Started Audit” it just as accurately could have been the “Annual Financial Checkup” which I think we all need.
Give the episode a listen, as it’s a real back to basics look at your financial life and why it’s so important to do at least an annual review of your:
- Net Worth. List out all your assets and liabilities by account and then figure out your current net worth. I use a simple excel spreadsheet, but many in our community use the free Personal Capital app.
- Paystub. Most of us never take this 5-minute review of our paystub to see what is truly being deducted every pay period. This is the perfect time to adjust your income tax withholding with HR if you’re getting too large a refund and want to have that money throughout the year.
- Expenses. Look quickly through your bank and credit card account statements to get a sense of what your life costs, what recurring bills you’re paying every month, and if anything significant has changed since your last financial checkup.
- FI Number. Once you’ve determined what your life costs (your annual expenses) you can determine your Financial Independence number by multiplying that number by 25 using the “4% rule of thumb” for safe withdrawals. If your annual expenses are $60,000, multiply by 25 to get a FI number of $1.5 million. This is also a good time to determine if you’re still comfortable with a 4% withdrawal rate, or maybe you want to be more conservative at 3% (then multiply by 33) or even potentially more aggressive at something like 5% (multiply by 20).
Jonathan mentioned at the end of the episode that I would link up our discussion of the Checkpoints of FI, which is pertinent to your FI Number and where you are on the path to FI. Give our Episode 324 ‘The Stages and Checkpoints of FI’ a listen as part of this annual checkup.
As always, pursuing FI is all about taking action! Do the work now and move forward confidently with your financial plan.
Is Your Home Properly Insured?
I read an article in the Washington Post this past week about the rising cost of homeowner’s insurance and I thought it was important enough to mention in the newsletter this week.
My concern is not necessarily that prices are increasing, however annoying that may be – it’s actually to ensure that we’re all properly covered in the event of a catastrophic event (kind of the purpose of home insurance!).
Construction prices have gone up significantly the past two years and if your home insurance isn’t based on “replacement value” and instead on some set ‘value’ of your home that may have been put in place years ago, you might be underinsured.
As the article said, “Most homeowners want their home back in the condition it was before the event destroyed it, which is why replacement cost — the cost to rebuild the home as it was — often differs from the value of the home.”
Take 5 minutes this week and make a call to your insurance company to determine what your home is insured for and make certain it’s something you’re comfortable with.
ChooseFI Resource of the Week: Meal Planning
Saving money on food each month is the lowest of the low hanging fruit on the path to FI. With a little bit of intentionality and planning, you can save many hundreds of dollars per month, eat healthy, delicious meals, and save a ton of time by avoiding the last-minute scramble of “what are we going to eat tonight.” at 5pm.
My wife Laura put together a pdf with 30 of her favorite recipes for meals that are relatively easy to make, delicious and only cost about $2 per person per meal.
Check out the free pdf download of Laura’s favorite meals here.
ChooseFI Community Taking Action This Week
- Ria said, “I shopped the post Xmas sales and bought paper goods items that I will use year-round and Christmas 2022 gifts for 70% off.”
- Liz said, “My 1% better this week is successfully making a custom excel net worth calculator for my family! I've been motivated and working on saving and paying down debt but I had no idea where we were exactly. It's awesome to finally have it organized in a way that makes sense to me!”
- Jorge said, “My 1% better was taking action after your end of year tax planning episode with FI Tax Guy. I managed to complete a Roth Conversion and stay in my 12% marginal tax rate and avoid any penalties by following this article and the aforementioned episode.”
- Teresa said, “I'm excited to share that our Christmas gift to our kids this year is a spring break trip to Yosemite National Park. We covered flights (only $55 out of pocket total for 5 people) with Chase Ultimate Rewards points and our rental car with our Costco credit card annual check. Learning more and more about travel rewards and excited to travel more for next to nothing. Even got the hubby on board! So grateful to ChooseFI!”
- Kathy said, “This week, we discovered a restaurant supplier that sells to the public and has less expensive prices on grocery staples than Walmart and Sam's Club. We took a " field trip" through the aisles and are planning a purchase that will be split among three households. We also cooked two big meals at home for Christmas and have been carefully rotating and freezing the leftovers to achieve maximum value. We did a prime rib for the first time this year. We figured out that by using coupons and cooking at home, we spent about 20% of the cost of a like restaurant meal. Ambience was much nicer too!”
- Brett said, “Late on the yearly wins but I graduated from PT school in June, moved across the country to AZ where I got my first job, built a solid emergency fund, maxed out a Roth IRA, started investing in my company's 401K, opened an M1 Finance account and have found the best option to refinance my loans at a much lower rate than I was getting from sticking with federal loans when the forbearance period ends and found this to be the best route for me upon much research. Overall net worth increase of just under $20,000 in 6 months of work. Along with that, I took a California road trip, snowmobile trip to Montana with my dad and hiked Rim2Rim of the Grand Canyon!”