Q: With 2020 drawing to a close, I’d love to give myself an end-of-year financial review before it goes. Where do I begin?
A: Giving yourself an end-of-year financial review is a wonderful way to check on the progress you’ve made toward your goals, highlight areas needing improvement and update your accounts, funds and investments. Here’s all you need to know about this important end-of-year ritual.
Step 1: Review all your debts and create a payoff plan
Take a few minutes to list all your debts and their interest rates. Have you made any real progress toward paying them off this year? Or have you stuck with minimal payments each month, leaving the actual balance to pile up since you’re mostly just paying for interest?
If your debt needs some help, you have two primary options for how to proceed:
- The avalanche method. Focus on paying off the debt with the highest interest rate first, and then continue to the debt with the second-highest interest rate. Move through the list until you’ve paid off all debts.
- The snowball method. Work your way through your debts, starting with the lowest-balance debt. Then, once it’s paid off, apply the payment that was previously committed to that debt to your new lowest debt. Repeat through the rest until all debts are paid off.
For both methods, be sure to pay the minimum balance on all your other debts each month. Try to boost your income and/or trim your monthly spending for extra cash and use it toward the first debt you are paying off completely.
Step 2: Automate your savings
Review your savings from 2020. Have you reached your goals? Have you forgotten to put money into savings each month?
Going forward, make it easy by automating your savings. Give us a call at to set up an automatic monthly transfer from your checking account to your savings account. [You can also set this up through your online and/or mobile banking with us.] This way, you’ll never forget to put money into savings again.
Step 3: Review the progress you have (or haven’t) made on financial goals
Have you made measurable progress toward your financial goals in 2020?
Take a few minutes to review your past goals, taking note of your progress and determining how you can move toward achieving them.
Step 4: Review your retirement account(s) and investments
As you work through this crucial step, be sure to review the following variables:
- Your employer’s matching contributions. Are you taking advantage of this free money, or leaving some of it on the table?
- The maximum IRA contribution limits for 2021. You will likely need to make adjustments for the coming year.
- Management fees and expense ratios for your investments. Fees should ideally be less than 0.1%.
- Your stock/bond ratio and investing style. You may want to take more risks in 2021 or decide to play it safer this year.
- Your portfolio’s balance. Does it need adjusting?
Step 5: Create an ICE Binder
The events of 2020 underscored the importance of making plans in case one becomes incapacitated for any reason. Create an In-Case-of-Emergency (ICE) Binder to hold all your important documents in one place in case the unthinkable happens. Because of the sensitive nature of the information it holds, be sure to keep this in a safe place where it will not fall into the hands of identity thieves.
Include the following in your binder:
- Medical information
- Account information
- Child care and pet care details
- Online accounts and passwords
- Insurance policy documentation and details
- Investment accounts and details
- A copy of your life insurance policy
- A copy of your living will
- A copy of your last will and testament
Step 6: Set new financial goals for 2021
As you finish reviewing your financial progress of the past year, look forward to accomplishing greater financial goals in the coming year.
A great way to turn dreams into reality is to set goals that are SMART:
Here are some goals you may want to set for the coming year:
- Create a monthly budget before January. Be sure to include all expense categories. Review on the first of each month and tweak as necessary.
- Review the week’s spending with your partner each Friday night.
- Pay off your largest credit card bill by 2022.
- Start a vacation fund in February.
- Cut out two subscriptions you don’t really use by mid-year.
- Slash your weekly grocery bill by 10% before May.
Wishing you a financially healthy New Year!
Your Turn: Do you have any additional steps for your own end-of-year financial review? Share them with us in the comments.