The end of the year is an exciting, but somewhat hectic time. In addition to the hustle and bustle of the holidays, traveling, winter cleaning, preparing – and eagerly looking forward to – the new year I like to review my financial checklist.
These checks help me understand how I’ve measured up against my financial goals and help better prepare for the upcoming year.
Here is my end-of-year financial checklist:
- Reviewing Charitable Contributions
Giving to those in need has been a financial priority over the last few years. Every year I set a charitable donation goal and review if that goal has been met in December. If it is not met this end-of-year review helps me get in those last-minute donations before the new year.
This year has been one of exceptional need. Food banks across the US have seen a substantial increase from first-time families and the need is expected to get worse before it gets better.
In a recent Feed America study, “Food banks have consistently seen a 60 percent increase in demand compared to this time last year, and continue to require more food and resources to provide to people in need.”
Equally worse, economic uncertainties have led to a drop in contributions from individuals as well as corporations.
This year I decided to donate to Gleaners of Indianapolis, Atlanta Community Food Bank, and a few others in my local community. I also intend to give a few times more before the year is complete.
I too am anxious about my job security, but I’d hope that if I were in need someone would help. I would encourage all of us to give if we can or reach out to these charitable organizations if we find ourselves in need.
- Rebalancing My Portfolio
Most people contribute to their 401k automatically and seldom check their performance until a major event such as an economic downturn or need for withdrawal occurs, but this is a mistake.
I make an annual effort to keep my allocations balanced. Rebalancing a portfolio is just as important as contributing.
When you establish your retirement account and determine your investment strategy you then allocate a percentage of your expected contributions to different asset classes. These classes vary but could be bonds, large-cap stocks, international stocks, or blended funds.
You may initially allocate 25% to each of these four classes, but over time as investments outperform or underperform these allocation percentages will change.
In a volatile year like 2020 you may find your assets more weighted in one class and less in another which goes against your original strategy.
It is estimated that only 80% of individuals rebalance their retirement portfolio.
Rebalancing your portfolio is the process of balancing your allocation to your original weight.
Failure to rebalance could place you at greater risk if your classes become too heavily weighted in one class versus another.
A good portfolio is one that has a diverse mix of classes and assets – this is called diversification.
You may also find that just like your taste in food, music, wine, clothing or other interests change over time so will your investment strategy. When your strategy or risk tolerance changes you may want to consider rebalancing your portfolio. It is also quite possible you don’t need to rebalance at all.
Rebalancing a portfolio is like an annual physical. Everything may be fine, but you still want to check-in and make sure everything is working as it should.
- Gathering and Preparing Tax Information
The IRS requires that most tax documents be postmarked by the end of January allowing taxpayers adequate time to file. I like to jump-start the process in December to better understand and keep track of what forms may be coming my way.
I am a business owner, landlord, and career professional, and generally have a lot of tax correspondence to sift and compile. Around December I begin locating and reviewing my expenses for the year and develop a checklist for all the documents I expect to receive in the upcoming tax season.
As I receive the items I check them off my list. This checklist helps me stay organized and not feel too overwhelmed in later months.
- Analyzing Current Year Spending and Goals
It is part of my monthly cadence to review my monthly budget against actual spending, but in December I like to review my yearly spending. This helps me understand any spending trends and assess if I’ve met or missed my financial goals.
Key items I may be looking for when I review my financial performance are:
- What budget categories did I over spend? I.e. restaurant, utilities, home maintenance, etc.
- What budget categories did I under spend? I.e. car maintenance, healthcare, travel, etc.
- Are these over/under spends part of a trend over many months or singular incidents?
- Did I meet my savings or retirement goal?
- Did I meet my credit card or student loan payoff goal?
Revelations in this year’s annual review were mostly centered around COVID. Some areas where I planned to spend significantly actually had minimal spending. Likewise, there were areas where I planned to spend very little, but spent a significant amount.
- Car Expenses
My car is older and approaching several expensive repairs which I budgeted earlier this year to have serviced. However, since my work commute has been significantly reduced I decided to delay a number of those repairs to next year and redirect those funds towards paying down credit cards, saving, or donating. My car expenses were drastically under budget this year because I decided to delay expenses.
- Restaurant Expenses
On the contrary, my restaurant spending was drastically over budget this year.
I generally do not dine-in at restaurants or order takeout so I budget very little in this area. I prefer to cook at home because it’s cheaper and I enjoy it. But this year shifted my priorities. My restaurant expenses were over budget because of my committed effort to support local restaurants due to COVID shutdowns.
It’s important to remember that a budget is a financial plan or a guide to help you stay on track, but sometimes unpredictable things happen. I may be over or under budget against my original plan, but reviewing my current year’s performance helps me understand my spending and more realistically prepare next year’s budget.
- Planning Next Years Budget and Goals
Once I have an understanding of the areas where I’ve met or missed my financial goals or spending budgets I can more accurately plan for the following year.
Last year I planned a significant amount of car repairs but due to a reduced commute, these items were delayed a year. Additionally, my restaurant expenses increased because it became more important for me to help support my local economy.
When I prepare next year’s budget I will bear these and other items in mind to create realistic financial goals and budgets to improve my overall financial health.
Finances can be stressful especially if you are not informed or not proactively managing your finances.
There are several budgeting applications that can do much of the heavy lifting for you and are conveniently available such as Mint Intuit or EveryDollar.
Nerd Wallet published The 7 Best Budget Apps which discusses a few more options.
It is ALWAYS good practice to review your monthly finances.
My end-of-year financial review keeps me financially abreast of improper spending habits throughout the year but also highlights any improvements. This way I can remain encouraged and continue to practice good habits, but also get a handle on any poor habits.
There are many sources related to financial management and planning, but none of them are catered to your personal circ*mstances. Therefore it is incumbent upon you to review your financials and reach out to a professional for additional guidance.
What are your end-of-year financial checks? Share in the comments below.
Did you enjoy this post and want to see more content like this? Please show your support by liking and sharing on social media!
