The beginning of the year is a great time for fresh starts and new beginnings
Whether you like the idea of setting resolutions or goals in the new year or not, I recommend that you choose one time during the year to complete an annual financial check-up and knock out some much needed financial tasks so they are not neglected.
There are several financial assessments or tasks that need to be completed at least once a year. To help with this process, download an Annual Financial Review Checklist from my Resource Library. You will get the password to this exclusive library by joining my email list in the form below.
Revisit Your Financial Goals
The only way to reach financial goals and milestones is to decide what you are reaching for. Once you have a goal in mind you can create a plan to achieve that goal.
When deciding financial goals, it is important to remember a couple of things.
Separate your goals by time frame including short, medium, and long term.
When you are creating your action plan to reach them, this will help you decide where you can keep your money as you build toward each goal. With money, our timelines are very important.
Timelines for financial goals allow us to choose the best savings vehicle for each goal to make the most interest on our money as we save it.
Use SMART Goals, but add one more element
Do be sure that your financial goals are SMART: Specific, Measurable, Attainable, Relevant, and Time-Based, however, add one more crucial element – Why?
What is your “Why?” Why is it important for you to reach this goal? What will be better if you achieve it? What will you lack if you don’t achieve it? Add a Why to give your goal some emotion and passion behind it.
For example, if your goal is to pay off all your credit cards by the end of the year. That is great. It is a good goal, but what you need to figure out is why you want to pay off the cards by the end of the year. This will give you the push you need to accomplish it.
Why does this goal matter to you?
Maybe it is because if you do, you will save $1000 in interest and that $1000 will be the starting point of a nest egg to give your baby when they graduate college and start life on their own.
You remember that you had to pay for everything yourself and you would love to give this gift to your child as they graduate. You can just imagine the look on his or her face as you tell them what you have saved for them.
Something like this is your Why.
Give Your Spend Plan a Checkup and Revise Where Necessary
Add in new income if you received a pay increase or unexpected bonus.
Adjust the actions you plan to take to reach the goals you set for your money.
Assess your life insurance products
Review your needs for life insurance. Make any adjustments that have occurred since you last completed this assessment.
Has there been a new baby in the family? Did a child graduate college? Have you had an income increase or decrease?
When you know your new needs, check if you have sufficient policies for your needs and change them with your policyholder as appropriate.
Check your Social Security statements
Are any of you old enough to remember when Social Security used to send out yearly statements of your income and estimates of what your Social Security payments will be?
Did you notice they have stopped?
Now it is our responsibility to review these statements online at the Social Security website ourselves. I bet most of you didn’t know that.
Why do you want to review them? Because if they make a mistake recording accurate income for you, then your payments can be jeopardized in the future when you start taking them.
Taking Social Security may be a long time off for you, which is even more reason to take a few minutes and check these statements each year. It will be a whole lot easier to send your W-2 in to prove they made a mistake now, then try to prove what is wrong 20 or more years from now!
You can do this by going to the Social Security Website and creating an account that you can log into each year and check your statements.
Pull Your Credit Report and Review
Identity theft is the last thing any of us want. However, with cybercrimes at an all-time high, it is something we need to remain diligent to protect against.
One way to do this is to check our credit reports annually.
I know, some of you monitor your credit through free apps or websites such as Credit Karma. Don’t get me wrong, I like this tool, but I have seen it miss many things on the actual reports. Don’t rely on it. Pull your reports directly from the actual credit bureaus.
The bureaus are Experian, Equifax, and Transunion. The government set up the website Annual Credit Report for you to gain access to each report once a year for free. Go here and you can pull each of the three reports.
Some people like to pull all three at once and only do it once a year. Others choose to spread out pulling them so they can monitor their credit throughout the year. However, you choose, pull each of them once a year to check for mistakes and fraud.
Prepare for Taxes
This is especially important if it is the beginning of a new year. Tax time will roll around before you know it.
Create a file folder and begin to keep all receipts and documents sent by banks, mortgage holders, employers, and others that will be important for your taxes.
Take some time to go through your banking transactions looking for items to categorize and total that would be tax time write-offs or deductions.
Assess Tax Withholding for the year
Use your first paystub to calculate if your federal tax and state tax withholdings are accurate for the remainder of the year.
Use the IRS Federal Withholding Estimator to help you with federal taxes.
For your state, you may need to do a little research. In Arizona, we choose what percentage of our paycheck we want to be withheld. To know what I need to withhold, I look up my Arizona state tax bracket for the year and make sure I am withholding just the right amount.
I certainly don’t want either the state or federal government holding on to my money or making interest on it when I don’t owe it to them!
Review Your Budget
If you have read my explanation of why a Spend Plan is better than a Budget, you understand that I think they are different.
I believe that a budget is best used as a tool for assessing what you have been doing with your finances and where you are at right now.
It’s time to review your last month or two to see what you have been spending and saving and what your financial obligations are (bills).
Check to see what expenses you can cut in the next year.
What did you go overboard on in the last year? More beauty products than you use. Too many clothes. More eating out than you want to admit.
What have you been paying for, but seldom using? A gym membership. A gaming membership that you want to cut back on. A wine club that you don’t really drink what they send.
Choose a few that you can cut out to move that money to help you reach a saving and investing goal or use it to pay off high-interest debt.
Assess each of your areas of spending to see if there are other places you can cut your spending.
Want to Start Investing? Read More:
Check for Subscriptions you need to cancel
Review your bank and credit card statements from last year for yearly subscription fees.
If there is one that you don’t want to repeat in the upcoming year, cancel it now or set a reminder to cancel it when the time comes to avoid those nasty auto-renewals when you don’t want to continue the service.
Update Savings Auto-Transfers
Now that you have adjusted your financial goals. Review your auto-transfers.
Check that they are the amount you want moving forward.
Increase if you are working off a percentage-based savings plan if you had a salary increase this year.
Make sure your auto-transfers haven’t expired, some banks only allow them to be set for a year at a time.
Don’t forget to check your transfers from your paycheck to banks and investment accounts as well as from your checking account to other accounts.
Update Student Loan Payment Plans
If you are on an Income-Based Repayment Plan (IBR) review your payment and reapply after filing your taxes. Don’t forget to reapply every year if you are hoping for loan forgiveness.
People who didn’t apply and pay on this plan every year were the ones that didn’t gain forgiveness after completing their 10 years of civil service.
Check Your Debt to Income Ratio (DTI)
Calculate your current DTI. I like to recommend that you stay below 20% DTI, not including your mortgage.
If yours is higher, aggressively work to pay off some debt to bring down your ratio. This will also open more money to save or roll to another debt.
Assess Your Credit Score
Seek out an estimate of your credit score. You can usually view one in several places for free.
First check places you are already a member for it like your bank, one of your credit cards, or another lender may offer it. You sometimes must sign up for it through them or activate the service.
If none of these places offer it to you for free, there are some free apps you can download to view it.
Please realize that some of these are not even your FICO score and if they are the FICO, it is still only one of several that FICO offers to lenders. However, it can still be a useful estimate to help you see if it is fluctuating.
If you would like to bring it up, these are the two things to focus on first this year.
- Pay all your payments on time this year. Don’t allow even one to be late enough to be reported as such.
- Bring down your utilization rate. Creditors want to see you carrying a balance of 30% or less of the limit on all your revolving debts combined.
Together these two things make up 65% of your credit score. If you improve them both you will see your score begin to go up.
Read more about bringing up your credit score:
Calculate Your Net Worth
Net worth is an overall financial health assessment. Younger people or people who purchased a home recently and don’t have much equity may see that their net worth is low or even negative.
This is okay at certain times in life, but you do want to see that your net worth is growing over your lifetime. The goal would be to have a large net worth as you get close to retirement so you can live off your assets and have fewer bills to pay on debts.
If yours is higher than last year, you are moving in the right direction!
Wow! You did well. That was a lot of assessment, but now you will be on your way to a stronger financial future. You can now step into the coming year knowing exactly where you stand with your finances and the steps to take to move you towards your financial goals.
I am so proud of you! If you have questions, feel free to email me or ask in our Facebook group.
Be sure to download your Annual Financial Review Checklist from my Resource Library. You will get the password to this exclusive library by joining my email list in the form below.