Build Your Financial Foundation with Regular Reviews Life in the 21st Century offers many exciting challenges and opportunities. Today, there are many financial strategies that can help you reach your short- and long-term goals. Your financial professional can be a valuable resource as you review your financial situation, ascertain your progress, and make any necessary adjustments. Most everyone has, formally or informally, a financial strategy that should be regularly reviewed. For example, you probably follow a budget, save for special goals, or look over your retirement savings from time to time. Whether paying bills or preparing your income tax return, you frequently look at various parts of your finances. However, once each year, you should pull all your records together and take a close look at your entire financial picture. Here’s a brief description of what a typical annual review might entail: Cash flow analysis. Does your income equal or exceed your fixed and variable expenses? The amount of income that exceeds what you spend is called positive cash flow. If your expenses exceed your income, you have negative cash flow. If your cash flow is negative, it may be time to reorganize your budget and minimize any unnecessary expenses so that you can focus on saving for your future. Provide money for special goals. For every financial goal you establish, you need to address the projected cost, the amount of time until your goal is to be realized (time horizon), and your funding method (a scheduled savings plan, liquidating some assets, or taking a loan). You should plan your goals according to priority. Most importantly, you should have an emergency fund of at least three months of income to handle life’s unexpected turns. Secondly, you may establish a savings plan for larger, long-term goals, such as your child’s wedding or educational expenses. Finally, consider the priority of more flexible goals (e.g., purchasing an automobile, enacting home renovations, and planning a vacation). Enrich your retirement. Are you going to have enough money when you retire? Pensions and Social Security may provide insufficient income to maintain existing lifestyles during your retirement years. Consequently, review your retirement needs and plan a disciplined savings program for your retirement. Minimize income taxes. Many taxpayers reduce their liability by taking advantage of tax breaks, such as contributing pre-tax dollars to an employer-sponsored retirement plan. Most also claim deductions for mortgage interest, traditional IRA contributions, or charitable donations. In addition, there may be other ways of reducing your tax liability. For example, under appropriate circumstances, losses or expenses from previous years may be carried over to the next tax year. Beat inflation. Suppose the current inflation rate is 4%. In order to maintain your buying power, you would need a 4% annual wage increase so that your income keeps pace with rising prices. A decline in your buying power would certainly lower your standard of living and affect your lifestyle. Consequently, consider putting your money to work for you to beat inflation. Manage unexpected risks. You are probably well aware that life involves risk, which could lead to financial loss. For example, you could become disabled without income, or an untimely death could cause financial hardship for your family. As a result, many have made insurance the cornerstone of their overall finances because it offers protection that can help cover potential liabilities and risks. These six steps will help you focus on the important issues that affect your finances. As you review your financial situation on an annual basis, you will probably need to make alterations due to changing goals and circumstances. However, if you faithfully keep track of your progress in these six areas, you may be able to both afford your future and finance your dreams.