How to Assess your Year End Finances

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The end of the year is a great time to look back, take stock, and evaluate your finances before you push ahead into financial planning for next year. Looking at a whole year’s finances can be overwhelming, but it is an absolutely essential step when building a solid personal financial plan. What are the steps you need to take to evaluate your year-end finances?

According to Liam M. Timmons, a
Registered Investment Advisor and President of Timmons Wealth Management, you should take the following steps:

  • The first key to assessing your financial situation at the end
of the year is having a budget in place. Unless you know where you are
spending your money, and unless you have a pre-set spending goal in place,
it is nearly impossible to judge where you stand. If a budget has never
been created, the end of the year is a great time to put one together in
preparation for the next year.
  • Take an assessment of where outstanding debts stand at the end
of the year vs. the beginning is a valuable practice; if you are carrying
credit card debt have you made progress in reducing it? Have you been
successful in reducing student loan debt, outstanding mortgages, or
personal loans? Looking at what you paid in interest over the course of
the year can be a real eye opener.
  • Savings goals – this is an important component of the year-end
review. Were you able to stick to your savings plan and ensure an adequate
emergency fund is in place? Have you contributed sufficiently to your
company 401k, IRA? In particular, how have your investments fared vs. the
broader market and are your returns as expected or better/worse? Using the
year-end review to make adjustments to your investment strategy is a good
practice and can help to ensure you properly rebalance and invest in-line
with your goals and risk tolerance.
  • Taxes – the end of the year (especially as a business owner) is
a great time to do some early tax planning with your accountant. Ensure
you are paying sufficient taxes so there are no surprises at tax time.
This can be factored into your investment rebalancing actions if money is
held in taxable brokerage accounts; there is a big difference between
short term and long term capital gains.

So remember: the end of the year is a great time to take stock of where you stand before you begin the process of planning your financial future.

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