The end of the year is a time of reflection. It’s when you look back on the past year and contemplate accomplishments, as well as your missteps. Ideally, you’ve learned lessons from both.
Whether you go through the physical act of writing down New Year’s resolutions or not, consider what could be done differently and what changes you can make over the next year to change some of the outcomes you weren’t satisfied with. Changes can be how you handle family relationships, how you approach romantic goals, or how you focus on the accomplishments you’d like to make at work.
All this introspection makes it the perfect time to do a financial checkup to determine areas where you’re doing well, as well as where it’s time to implement changes.
Where to Begin
The best place to start is with the end. In this case, it’s where you wanted to end up, meaning your financial goals. Perhaps a goal was to pay off a credit card with a $12,000 balance. Did you do it? If not, how far did you get? Your goals could also be long-term ones such as saving for a house or stashing money away for your retirement. How much closer did you get to achieving these goals?
If you failed to meet your goals, determine why you failed. Did you overestimate your resources? If this is the case, you may want to consider adjusting your goals so they’re more achievable. However, if you didn’t meet them because you just couldn’t give up that expensive bad habit, or you continued to spend money frivolously, then adjustments need to be made.
Of course, you may have faced a difficult situation over the past year that hindered your ability to meet your goals. Perhaps you got married or had a baby. Starting a new job or losing one, going through a divorce, or moving: these can all have a big effect on your financial situation and your ability to stick to your budget. Additionally, if you anticipate any of these big life events over the next year, you should include them in your financial plan and try to prepare for them as best as you can.
Once you understand how you did in meeting your goals and how you can correct any shortcomings that you may have had, go on to the following checklist. It’ll help you get a clearer picture of your current financial health.
- Re-evaluate your budget: Identify areas that need improvement, and make necessary adjustments.
- Look at your emergency fund: If you have six months’ of expenses saved, fantastic! If not, you should be putting away a little each month until you have enough money saved to cover emergency expenses due to an illness, unexpected job loss, or other unforeseen event.
- If you’re not maxing out your 401(k) contributions, you should start, if you can afford it: If you can’t, try to put in the maximum amount that your employer will match.
- If you have a flex spending account for healthcare, check the balance: You reserved this money for healthcare expenses, but if you haven’t used it by the expiration date, you lose it. You don’t have to spend it at the doctor. You can buy new glasses, visit a chiropractor, or have non-cosmetic dental work done.
- Assess your stocks: Consider under-performing stocks and determine if it’s time to shift to riskier or safer investments.
- Meet with your financial planner or accountant if you have one: Tax time is just around the corner. Your advisor may be able to save you some money on your current taxes.
- Evaluate your surplus: If you’ve been sticking to your budget, you should be left with a surplus of money, which should be used for debt payments, savings, and creating an emergency fund.
- Tally your debt: The hope is that, over the last year, you were able to pay down a significant portion of your debt. Unfortunately, you may have added debt instead. Obtaining copies of your credit reports from all three credit-reporting agencies can help you understand the scope of your debt. Make sure you know exactly how much debt and how much credit you have.
- Call your credit card companies about a better rate: If you’ve been paying down your balance faithfully (and on time), you’ve probably improved your credit score and may qualify for a reduction in your interest rate.
- Review your insurance policies: Review when your policies last updated. You may need more or less coverage that you currently have, or you may qualify for discounts that you didn’t know were available. If you made any expensive purchases over the last year, you should call your insurance company and find out if they should be documented in your policy.
Put Your Best Financial Foot Forward
After the holidays, as you’re recovering from your food coma and digging yourself out from under a mountain of wrapping paper, going over your finances is the last thing you want to do. However, just as your physical health requires attention and diligence, so does your financial health. When you’re on top of it, things are less likely to fall through the cracks. Your income, debt, investments, retirement, savings, insurance, expenses, and spending are all part of the multi-faceted entity that makes up your financial life. By periodically giving it a thorough examination, you’ll regularly get a clean bill of health.