How to Do a (Painless) Annual Checkup on Your Finances
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The end of the year is a perfect time to do an annual checkup on your finances. While you may still be finishing up holiday leftovers and recycling wrapping paper, it’s important to realize that an end-of-year financial checkup can be quick and painless if you keep it simple.
Annual checkups are all about maintaining and being accountable for the goals you set. You don’t have to come up with a whole new investment strategy if you don’t want to. Here are a few things you can do to make you annual financial checkup stress-free.
start with Where Things Went Wrong
If it’s not broke, no need to fix it. When you’re reviewing your finances, go back to the initial goals you set and focus on the ones you didn’t quite meet.
For example, if your goal was to try to save 15 percent of your income this year and you fell short, try to figure out why and what factors came into play.
Maybe you need to save more money each month in some areas or ask your employer to withhold more. Or, you might want to change that goal completely if your needs have changed.
Make adjustments that need to be made like setting up automatic transfers, calling your insurance company or anything else you can do to fix any of the issues you had this year so next year runs much smoother.
Make Small Adjustments to Your Budget
Your budget should change every year if not multiple times throughout the year as your situation changes. If you’ve never created a budget, now would be the perfect time to make a budget as we go into the new year.
You can sign up for Mint or Personal Capital for free to track your expenses over the last few weeks in just seconds so you can get a better idea of where your money is going.
If you already have a budget, it should only take a few minutes to determine which categories need to be updated. It took me only a few minutes to adjust my budget for the following year and I decided to change my monthly savings contribution, lower my auto insurance payment, and increase my monthly grocery budget by $100.
look at Your Retirement Accounts
Take a peek at your retirement account(s) to make sure you are on track to meet your goal, or if you need to rebalance. If you use a robo-advisor like Betterment, they already do this for free for you.
For your 401(k), the annual deadline to contribute up to the maximum is just about here but with your IRA, you can keep contributing until April 15.
If you’d like to step it up and start maxing out your 401(k) next year, check with your plan administrator to see if you can make a catch-up contribution. You won’t always be able to do this but it’s worth a try.
Check on Your Insurance
Have you gone through any major life changes like adding a child to your family or getting married? Check on your life insurance to make sure the coverage is sufficient for your family and update beneficiaries. If you need additional insurance, a term policy is a great option if you don’t already have one. It’s also a good idea to look into disability insurance.
While you’re thinking about insurance, make sure you’re not overpaying for your auto insurance. After a few minutes of research on my end followed by a five-minute conversation with my auto insurance provider, I was recently able to lower my auto insurance by $12 a month without making major changes to my deductible or collision and comprehensive coverage. It’s not a lot of money, but it does add up and can be better spent elsewhere.
See How Much Interest You’ve Been Paying on Your Debt
If you are currently paying off debt, it will be interesting to see how much it’s costing you each year so you can decide if and how you’d like to change your repayment strategy.
Most lenders will put together an annual statement showing you how much you’ve paid over the past 12 months. They’ll also show how much of your money went toward interest vs. the principal balance. You can check your account online to access this information as well.
If you have credit card debt you can accelerate debt repayment by lowering the interest rate you’re paying. Companies like Lighstream can help you consolidate your debt to obtain a lower interest rate. You can also look into balance transfer offers to cards with a 0% interest rate as an option to kill your debt faster.
My student loan lender recently sent me a similar document in the mail showing this information and it was eye-opening to see how much money I spent on interest throughout the year. Seeing information like this and checking in on my debt progress motivates me to push harder to reach my goals and minimize the amount I spend on interest each month.
No matter which strategy of debt repayment you choose, consistently making extra payments will save you money over time which is always a good thing.
Compare Salary Rates for Your Position
Now it’s time for the fun part. As you’re checking up on your finances, it’s always good to find ways to earn more money at your job. You can gain information about how much people are being paid for doing your exact job on sites like Glassdoor and PayScale.
The information you find along with a self-assessment of your performance over the past year may prompt you to negotiate a raise with your employer or increase your rates if you’re a contractor.
If and when you do receive a raise, focus on using the money wisely the following year and don’t give in to lifestyle inflation if it’s not necessary.
Keeping It Simple
If you stick to your budget and maintain your finances throughout the year, your annual check up shouldn’t be too hectic.
Try to keep it simple and make a to-do list of tasks you’ve been putting off and focus primarily on your problem areas so you can improve your situation for next year.
Have you done your annual financial check up yet? What areas do you focus on most? How many times to you make adjustments to your budget throughout the year?
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