Planning your Year End Financial Review

End of year is a time we like to reflect on the past and set goals for the year ahead. At this time, we may sit back and consider the experiences we’ve had, the growth we’ve made, and the lessons we’ve learned over the last 12 months. But as we check-in with ourselves, we should also be checking in with our finances.

Whether it’s to reap the rewards of your efforts or discover the potential of a plan, your end of year financial review should get you inspired and organized for success.

Use this checklist to get yourself ready for the New Year:

Track & Refine Your Finances

The first step towards a healthy financial practice is to regularly track and refine your finances. Consider how much you earn each month and then look at what you spend on groceries, dining out and entertainment, bills and subscriptions, credit card balances and interest fees.  Where does your money go?

If you aren’t already in the habit of tracking your finances, now’s the time to….

• Create a realistic budget in whatever format works best for you, using a spreadsheet, journal, or an online banking tracking tool. Go through your bank statements to see how your spending and saving currently sits and where there’s room for improvement.
• Set spending limits for each category and make an effort to stick to them. Having a cap on the amount of money you feel it’s fair to spend in a certain category will help prevent you from going overboard.
• Automate bill payments and savings to keep your finances on track. Sometimes life gets in the way and it’s easy to overlook a payment due date. Late or missed payment can impact your credit score. Why risk it?

Deal with Debt

The average Canadian household has an average debt load of about $21,000, excluding mortgages. Reviewing what you owe and creating an intentional plan to pay it off can be a rewarding experience that makes the discomfort of debt feel more manageable.

There are a couple different strategies for paying down debts...

The Avalanche Method for debt repayment requires you to list your debts in order of the highest interest rate to the lowest. Each month, the use the money you’ve allocated in your budget to go towards debt repayment to cover the minimum balance for all your debts, putting the remainder of those funds toward the debt with the highest interest rate.

The Snowball Method focuses on small wins that build momentum. Stary by listing your debts from the lowest amount owing to the highest so you can feel motivated by the experience of gradually knocking balances off your list.

Review Your Financial Goals

If you already set financial goals last year, bravo! Now’s the time to appreciate how far you’ve come. If there have been setbacks, you may want to consider ways you can compensate in the New Year with strategies to either earn more money or decrease your spending.

If you haven’t set any financial goals yet, then there is no better time to begin.

Calculate your net worth as a starting point. To do so, simply add up your assets and subtract your debts and you’ll know where you stand. As you pay down your debts, your net worth grows.

When saving for retirement, it is advised to put enough away to cover your expenses for 25 years. Knowing your net worth will make it easier to track your progress towards this goal from year to year.

Set realistic short and long-term financial goals and keep them at the forefront of your mind. Be clear about your intention using the XYZ method of goalsetting. I want to go from X to Y by Z. For example, I want to go from $2,000 to $3,200 in my travel fund by next December. Then create a plan to get your there. If putting $100/month away for travel is not possible, adjust your goal accordingly. Setting unrealistic expectations can be more demotivating, as opposed to just setting a more modest or longer-term goal.

Beneficiary Review

Revisit your life insurance policy. You’ll want to ensure that there will be enough to cover your partner, children or any dependants in case of illness or an accident, affording them the financial room to grieve. Does your policy still meet your current needs or those in the foreseeable future like college or childcare? Who is the beneficiary?

Likewise, ensure your assets go to those intended with your Will and bequests. It is important to note that adding beneficiaries to your assets will trump whatever is written in your Will. Therefore, it is crucial to ensure that both documents are aligned.

Your year-end financial review will help you to stay on track with your financial goals and make sure that you are aimed in the right direction for the year ahead. Need guidance on getting your finances in order? Talk to us. We’d love to help.

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