End-of-Year Financial Check Up
You may visit your doctor once a year to make sure everything is well, but there’s something else to add to the calendar: an annual financial checkup!
As you prepare for holiday spending, the end of the year is an excellent time to assess your fiscal fitness and ensure your finances are on track.
With an annual financial checkup, you can fix small problems before they become big issues.
That’s why we’ve segregated your finances into 7 distinct categories to create this end-of-year financial checklist.
- Your Budget
A personal budget is truly the foundation of all personal finances. Without it, it will be difficult to accomplish anything at all.
Is your budget working as it should? If not, review it to ensure it’s doing its job. Your budget should provide you with a good picture of your cash flow and the funds you have left over after all of your expenses are paid.
Make sure that income is being fully recorded and expenses are being properly categorized.
- Your Financial Goals
Have you made progress on your goals this year? If not, where have you fallen short? Evaluate your progress and adjust as needed. Tweaking your action plan can help you accomplish your goals even more quickly.
You probably have more savings goals than just retirement. Use this opportunity to update your short- and medium-term savings goals. This can result in dramatic improvements in your finances.
- Your Emergency Fund
Is your emergency fund adequate? If not, ensure your emergency fund matches your present circumstances.
5 years ago, a $4,000 emergency fund may have been acceptable for your circumstances. Is that still the case? Have your income and expenses increased to a point where the corpus needs to be increased?
A good rule of thumb is to stash 3-6 months’ worth of living expenses in a high-yield savings account.
- Your Debts
The ultimate objective with debt is to make it disappear, at least in time for retirement. The only way to do that is if you are monitoring it regularly.
How do your credit card balances look? If they haven’t decreased, it’s time to figure out where the leaks are coming from and try to seal them.
Don’t forget your credit score. If it has dropped in the past year, check for errors in your credit report and look for other ways to improve it.
- Your Estate Plan
Your estate is a reflection of all the hard work and sacrifices you’ve made your whole life. To make it all worthwhile, it makes sense to determine how you want your assets to be passed on to the next generation.
It’s common for people to create a will, then forget about it for the next 2 decades. The problem is that your circumstances will change as time goes by.
Have any changes taken place that requires updating your estate plan? If yes, it may be time to update your will or trust. The review should include updating beneficiary information and allocations.
You should also ensure that selected custodians for your kids are still reliable (hey! relationships do change with time).
- Retirement Savings
Review your retirement savings to ensure the level is consistent with your retirement goals.
Are your retirement savings on track? If not, evaluate your company’s 401(k) plan contribution. Are you making the maximum contributions? If not, you should increase your contribution level to at least maximize the employer-matching contribution.
Open up a Roth or traditional IRA if you’ve already maxed out your contributions.
- Your Insurance Coverage
Are you properly insured?
This is the better-safe-than-sorry part of your financial strategy that many people overlook. The result of such neglect could be that you have either exposed yourself and your loved ones to potential calamities or that you pay too extra for the coverage that you have.
It’s very likely that the policies you took out when you began your career are no longer suitable for your current income level or expenses.
Review all your insurance policies to ensure you have an appropriate amount of renter’s or homeowner’s insurance, life insurance, and disability insurance (for income protection).
Conclusion
There’s no doubt that an end-of-year financial checkup can be an intricate process. We hope this checklist will make things simpler!
If your assessment calls for some changes, use that info to start planning for 2023.
By only monitoring your progress in the most recent year, you can get yourself mentally and financially ready for progress in the year that’s now upon us.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.