As the year comes to a close, it is ideal for consumers to conduct a financial review. This helps them prepare not only for the impending holiday expenses but gets them on track for the coming new year. It could be the least on your mind as the holiday season approaches but it is one of the most important aspects of your life you cannot afford to overlook.
On an average, a household debt amount can reach about $132,000 according to Nerdwallet.com. This is a staggering amount that eats up your income on a monthly basis. It might seem that as soon as you finish one payment, another one is looming just a few weeks after. You feel trapped in an endless routine of work and debt payment.
With this in mind, there are a lot of people who seems to take on a reactive stance when it comes to their finances. They believe that there is no end to their debt repayment cycle that they just take a backseat and continue on with their usual payment. The holidays are no different because they just add on more debt which they will pay off slowly as the statements come in.
As the holiday season start to roll in, you need to avoid money problems before the year ends and one of the ways to do this it so conduct a financial review. The practice of looking over your budget, expenses, activity and others can greatly improve your money management skills. This is important to allow you to end the year right as well as start the new year on the right financial footing.
Financial review before year ends
Here are some of the questions you need to keep in mind when conducting a review of your finances.
Did you meet your annual financial target?
This is the perfect time to bring out your financial resolution for the year and see where you stand a few weeks before the year ends. It is an important list you had at the start of the year which lists down all the financial goals you have for the year. This is a great starting point when you are trying to assess and conduct a financial review.
This list could include some big ticket items you are planning to purchase within the year. It can also list down all your planned savings activities. This can help you set aside a certain portion of your income towards a specific goal. It can also have a detailed list of debt accounts that you want to aggressively pay down to help free up more funds in your budget. One thing you have going for you is the fact that these new year’s resolution help a lot of people. According to Reuters.com, this list is able to help a lot of people get their fiscal affairs in order.
If no, where did you go wrong?
With list on hand, you can now review your financial activities for the year and if you were off course, then you need to take a closer look at your financial activities. Identify where you fell short in your list and check how far off you were from projection to actual implementation. You might need to identify more than one item in your list so be very thorough.
Once you pinpoint the problem you need to dig deeper to understand why it happened. Oftentimes, you could see a big credit card bill for one month and just remind yourself to be more careful with your spending but fail to realize the reason for the purchase. If you take a closer look, you might realize that it was an emotional purchase or one of those times when you had the case of retail therapy.
You need to always take a closer look at your expenses to understand why you made that financial mistake. Addressing the underlying issue will allow you to have a bigger chance of steering clear of making the same mistakes in the future. If you adapt a band-aid solution to your problem, you run the risk of committing the same thing all over again.
If yes, where can you make improvements?
Once you are on track with your financial resolution and your budget then you are doing a good job with your finances. Your financial review is a lot better and much easier to accomplish. You can’t wait to wrap it up and pat yourself on the back for a job well done. However, resting on your laurels is not a habit of successful people.
If you want to be successful with your finances, you need to constantly make improvements. If you achieved your goals for the year then you can start drafting your financial resolution and budget for the coming year. You can look at areas in your financial life where you can make improvements and where you can aim a little higher the next time around.
Setting financial goals for the year
Part of your annual financial review is putting together a draft of your next year’s budget. Here are a few things to keep in mind while you
- Start planning for next year’s financial goals. By now, you should have an idea of what you want to achieve with your finances for the coming year. You might be looking at getting a new car, paying down a significant amount on your mortgage loan or even starting your own business. The best thing you can do is write it down and commit to making it a part of your plans for the coming year.
- Set realistic goals. Your financial goals will also have to be realistic in nature so you do not end up disappointed at the end of the day. There is a fine line between trying to encourage yourself versus setting unrealistic goals.
- Break down big amounts. Forbes.com shared that the national debt is already around $18 Trillion and that is one big amount. If the country just focused on that amount, it could lead to a very stressful repayment effort. The same with your debt, if you will focus on the total amount, you might make be led to believe that you cannot repay that whole amount. Break them down into smaller numbers which you can work on a monthly basis. Paying $30 a week is easier than looking at $1200 total every time. However, you need to carefully weigh this with interest payments because there are times where it looks smaller when you break it down but interest is actually making the whole thing bigger in the end.
- Be sure to reward yourself. When you set aside a certain amount for small rewards in your budget, it adds to your desire and willingness to stick to that plan. There will be times wherein the budget will be difficult to follow and these rewards can be a great to encourage you to move forward and stick to your plans. The challenge in this rewards system is to put in place a plan that would not overpower your target savings. If your rewards consist of expensive jewelry or vacation trips around the world then you might be doing your budget more harm than good.
Conducting an annual financial review for as the year draws to a close is a great way to strengthen your financial position in life. Not only will it show you how you performed this year but it will also be a great guide as you put together your financial plans for the coming year.