How to Review Your Finances Before the New Year

It's the end of another year and time for your yearly Year-in-Review.  Except this time you are going to pay special attention to your finances.  Because admit it.  It's high time you got your ish together.  Welcome to Reviewing Your Finances 101.

Paying the same credit card bills year in and year out, living paycheck to paycheck, and all those other financial worries has got to get old sometime.  And I know you are probably ready to leave all those financial worries behind.

That's why, this year you will be doing a thorough review of your finances and your financial goals.  Because it is pretty easy to get off track.  

You may think that you are heading in the right direction only to realize years later that somewhere along the way you took the wrong path.

Now, we definitely don't want that to happen.  So I'm glad you're here.  Because we'll go over the 3 most important things you should do every year when reviewing your finances.

3 Must Dos When Reviewing Your Finances

1. Thoroughly Review Your Finances

Of course, when conducting a review of your finances, you will want to, um, go over your finances.  So for starters take a look at your budget for the past year.  How well did you stick to it?  If you weren't able to stick to it, why not?

Once you figure that out then you can see how you can move forward with budgeting next year.  Maybe you need an extra category that you forgot to include before.  Or maybe you'll want to set up a sinking fund for unexpected expenses.

In addition to reviewing your budget, you'll want to evaluate your yearly goals in terms of your debt, savings, investments, and retirement. 

Your Debt and Your Credit

Next, take a look at your debt and your credit.  Were you able to make timely payments this year?  Did you make sure you paid way more than the minimum?  Look at how much money you owed in the beginning of the year and compare it to how much is left now.  Is it substantially less?  

If the numbers are not to your liking, then you know what you have to do in the new year!  

And while you are at it, be sure to pull your free credit report and look for any discrepancies.  Where your credit is concerned, you can never be too safe.  Make sure you are not being charged for things you didn't purchase.  And make sure your credit rating is going up.  Always going up.

Savings, Investments, Retirement Plans

Last but not least, you will need to check your savings, investments, and retirement plans.  Were you able to save as much as you'd hoped?  If not, what stopped you from doing so?  

If you can figure that out, you can set it up a system that will ensure you hit your savings goal.  Even if it takes automating your savings, there is always a way to get what you want.

If it helps, I sell savings trackers here and on Etsy.  You can use them to help you visually track your savings progress.

Check your investments and see whether they are performing well or underperforming.  If the returns aren't where you want them, it might be time to think about selling them or trading them in for a better performing asset.

Finally, check in on your retirement accounts.  Do you want to increase your yearly contributions?  Are they performing well or no?

Insurance

Don't forget about insurance! It's not one of the usual categories people think of when reviewing their finances.  But it is integral to your financial health in that it provides a way for you to protect your assets.

Make it a priority to check the coverage you have for your car, house, and healthcare.  You want to make sure you are sufficiently covered should the unexpected happen.  

Here's where you can decided whether you want to increase coverage, decrease it, or try to save some dough by moving your insurance policy to another company or signing up for a bundled deal.

You may also want to look into getting (if you don't already have) life insurance and long-term disability insurance.

2. Take a Look at Your Life Situation

An important step that many people overlook when doing their financial review is actually taking a look at their life and what is going on in it.  Are there changes on the horizon?

Your age and your life plans play a significant part in your finances and greatly affect your future financial plans.  For example, if you know you are going to get married soon, you know that you'll need to start saving up for a wedding if you don't want to fall into loads of debt.

Same goes for having children, plans to move to another state, changing jobs, etc.  If you are older, maybe you will want to focus more on your retirement savings and healthcare.

Okay but before you start planning your future, this is a review of your finances so first let's take a look at what happened this year.  Did any unexpected costs arise?  Have you met the love of your life that you can now see having a future with?  Did the pandemic screw up your savings plan?

Once you have this year all figured out, move on to planning your next year.

3. Compare Your Current Situation with Your Long-Term Financial Goals

Now for the gipper.  How does your financial layout for the year compare to your big financial goals?  Are you on the right track?  If not, what can you do to get back on track?

If your plan is to be debt free next year, are you on track for achieving that goal? Maybe you're planning to buy your dream home soon, if so, are you on track for having the down payment in the next few years?

Take some time to really look at your finances in terms of your overall financial goals.  When do you want to be debt free?  When do you want to retire?  And are you on the right path to accomplishing these goals?

This is the part where you need to figure out where you are, where you want to be, and determine if you are heading in the right direction or if you need to re-orient yourself.

Do this often enough and you'll be on track to accomplishing your financial goals in no time.  So take some time here to figure out if you are on the right path.  And if you are not, use this time to create a clear, detailed plan for how you are going to get there.

Questions to Ask Yourself During Your Annual Financial Review

1. What were your goals for the year?
2. Did you meet them?  If you did, why do you think that is?
3. Which goals were you unable to meet?  Why do you think you were not able to accomplish them?  
4. What can you do differently next year?

What you want to do here is figure out what worked, why it worked, what didn't work, and why it didn't work.  If you can understand why something worked, then you can recreate it again.  And if you know the reason why something did not work, then you can take action to prevent that from happening again.

By doing this, you can create a plan with a greater potential to succeed. 

All in All

Reviewing your finances is never easy.  You may have to face a reality that you don't want to see.  But in order to get to where you want to be financially it's something you must do regularly.

By knowing where you want to go and understanding where you are now, you can figure out the best path to take to reach your goals.  So don't be afraid to face reality head on.

Face the music now so that in the future you can dance to it.  ; )

Good Luck! And Happy New Year!!