How to Do an Annual Financial Review: A Simple Guide to Checking Your Financial Health

Annual Financial Review

Annual Financial Review serves your money just as an annual check-up keeps the body in shape. It helps provide a clear understanding of where you stand financially, of what is working and what is not, and of how your money habits can be changed for therefore better throughout the coming year. A Annual Financial Review check is something that one does once a year. It includes time for reviewing income, expenses, savings, investments, and goals. And another strange thing is that you don’t have to be a financial guru to carry this out.

In this blog, we shall take you through a step-by-step, straightforward approach to your personal financial audit. We shall discuss everything from budgeting, investment performance, and asset allocation to such important topics as goals. So get yourself a comforting drink and set aside an hour of peace versus chaos as we review your money.

Why Is It Necessary to Conduct an Annual Financial Review?

First, let’s explore why Annual Financial Review check is so important.-nStay on track with your present goals (buying a house, retirement, and vacations).

• Fix leaking money – unnecessary subscriptions, high-interest debt, under-performing investments.
• It helps you make smarter money decisions for the future.
• You get a clear picture of your financial health.

Step 1: Review Your Income and Expenses (Personal Budget Review)

To begin, we will work on the fundamental question of what is in and what is out.

• Add up all the income you have for the year: salaries, bonuses, rents, freelancing, side hustles, whatever it is.
• Look at all the expenses next: rent, EMIs, groceries, utilities, shopping, and entertainment.

This step becomes very easy if a monthly budget is prepared already. Otherwise, bank statements, credit card statements, or apps like Walnut, Money Manager, or YNAB can be used to keep track of expenses.

Ask yourself:

• Did my income increase, decrease, or stay the same?
• Am I living within my means?
• Where am I overspending?
• Am I saving enough?

This personal budget review sets the tone for the rest of your financial audit.

Step 2: Check Your Emergency Fund

Your emergency fund is your financial safety net. It helps you handle unexpected expenses like medical bills, car repairs, or job loss without going into debt.

Rule of thumb: You should have 3 to 6 months’ worth of living expenses in a separate savings account or liquid mutual fund.

Ask yourself:

• Do I have an emergency fund in place?
• Has my lifestyle changed (new house, baby, job change)? If yes, do I need to increase the fund?
• Is it easily accessible in case of an emergency?

If you don’t have one, make it a top goal for the coming year.

Step 3: Evaluate Your Debt

Debt isn’t always bad, but unmanaged debt can be dangerous.

List all your debts:

• Credit card balances
• Personal loans
• Car/home loans
• Student loans

Now answer these:

• What’s the total amount I owe?
• What are the interest rates?
• Am I paying only the minimum or clearing it quickly?
• Do I have a repayment plan?

If you have high-interest debt (like credit cards), consider paying it off aggressively. You can also look into balance transfers or debt consolidation to reduce interest rates.

Step 4: Review Your Investments and Their Performance

This is one of the most important steps in your money review.

List all your investments:

• Mutual funds (SIPs, lumpsum)
• Stocks
• Public Provident Fund (PPF)
• National Pension System (NPS)
• Fixed deposits
• Recurring deposits
• Gold
• Real estate
• Digital assets (if any)

Now analyze:

• What’s the return on each investment over the past year?
• Are they meeting your expectations?
• Which ones are underperforming?
• Are you invested based on goals, or are your investments scattered?

This is your chance to clean up your portfolio and align it with your goals.

Step 5: Reassess Your Asset Allocation

Asset allocation is how you divide your money across different types of investments — equity, debt, gold, etc.

Why is it important?

Because it balances risk and return. Too much equity means higher risk; too much debt might slow your wealth growth.

Common rule of thumb: (100 – your age) = % of portfolio in equity

So, if you’re 30, keep around 70% in equity, the rest in debt and other assets.

Ask yourself:

• Is my asset allocation in line with my risk appetite?
• Has my risk tolerance changed?
• Do I need to rebalance (move funds from one asset class to another)?

You can use apps or consult a financial advisor to get your ideal asset allocation based on your goals.

Step 6: Check Your Financial Goals

Your financial goals are the backbone of your money plan. These could include:

• Building an emergency fund
• Buying a car/house
• Children’s education
• Traveling
• Retirement

Ask yourself:

• What goals did I set last year?
• Did I achieve any? If not, why?
• Are there new goals for this year?
• Am I on track, or do I need to increase investments?

Use SIPs or recurring deposits for goal-based savings. Seeing your progress motivates you to stay on track.

Step 7: Review Your Insurance Coverage

Insurance is your protection plan for life, health, and property. During your yearly finance check, make sure your coverage is still adequate.

Life Insurance:

• Do you have a term plan?
• Is the coverage amount enough (usually 10–15 times your annual income)?

Health Insurance:

• Do you have a separate health policy apart from your employer coverage?
• Does it cover your family?

Other policies to check:

• Home insurance
• Vehicle insurance
• Critical illness cover

Step 8: Review Your Tax Planning

This step helps you save money legally and smartly.

Review:

• What tax-saving investments did I make last year (ELSS, PPF, NPS, LIC, etc.)?
• Did I use my Section 80C limit (₹1.5 lakh)?
• Can I increase contributions to NPS (additional ₹50,000 under 80CCD)?
• Have I claimed deductions under 80D (health insurance), 80G (donations), etc.?

Also, gather all your tax documents (Form 16, interest certificates, capital gains statements, etc.) early in the year. It makes tax filing stress-free.

Step 9: Check Your Credit Score

Your credit score affects your ability to borrow money and the interest rate you’ll pay. It’s based on your credit card usage, loan repayment history, and more.

Use free platforms like CIBIL, Experian, or CRIF to check your score.

Ask yourself:

• Is my score above 750?
• Are there any errors or frauds?
• Can I improve it by paying dues on time and reducing credit utilization?

Step 10: Organize and Automate

Once you’ve reviewed all aspects of your financial health, it’s time to organise your money life.

• Use budgeting or investment apps to track everything in one place.
• Set up auto-pay for EMIs and bills.
• Automate SIPs and RD contributions.
• Create a financial folder on your cloud or computer with all important documents (insurance, investment, tax, etc.).

Step 11: Talk to a Financial Advisor (If Needed)

If your finances are becoming complex — multiple goals, higher income, family planning — consider talking to a certified financial advisor. They can help you refine your strategy, rebalance your portfolio, and optimize your tax plan.

Also, Check – Top 5 Money Habits of Financially Successful People

Conclusion

Doing a Annual Financial Review check isn’t just about numbers. It’s about understanding your relationship with money and taking control of your financial journey. Just like a fitness routine keeps your body healthy, this yearly ritual keeps your finances strong, resilient, and future-ready.

So make it a habit. Set a date every year — maybe the start of a new year or the end of the financial year — and give your money the attention it deserves.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.