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How to Conduct an End-of-Year Personal Finance Review

Finances
Woman drinking coffee and looking out of her window after conducting a personal finance review

The end of the year offers a great opportunity to reflect on what you've accomplished and celebrate the progress you've made. It's also a good time to consider what you might want to do differently next year. This applies to all areas of your life, including your finances.

Conducting a personal finance review can help you close out the year strongly while starting the new one on a good financial footing. A year-end review of your personal finances is also a smart way to proactively prepare for your future goals.

Here's what to think about, and what to cover as you reflect on your finances.

Take a Look at Your Transactions

The money coming in (like your income) and money going out (like your spending) helps create the foundation for your financial success. Total up how much you made this year, and then go through your transactions or bank statements to see how much you spent.

Did you spend less than you made? Were you able to make progress paying off any debt, or did you take on more? These are good questions to know the answers to, as they are indicators of how well you did with your cash flow this year and what you'll have on your plate the next.

If you spent more than you earned or went further into debt, don't beat yourself up over it. Acknowledge it as something you must address to put yourself in a better financial position in the coming year. You might need to cut back on spending, find ways to lower expenses and bills, or focus on earning more money.

Review Your Savings & Company Benefits

Spending less than you earned is a good start — but it's not enough to just break even if, say, you're preparing to meet retirement goals. You need to save money along the way. Here are a few types of savings accounts you may want to address in your personal finance review at the end of the year:

  • Your work retirement plan: This could be a 401(k), pension or another type of plan, like a 403(b). Have you contributed enough to get an employer match (if one is available)? Do you have room in your budget to increase contributions? Do you need to reduce contributions to manage debt or household finances?
  • Your individual retirement account (IRA): In addition to your employer-sponsored retirement plan, you can open and fund your own IRA. If you have one, is it a traditional or Roth account (or do you have one of each)? Do you have any applicable tax deductions to file if you've invested in a traditional account? How much have you contributed, and has it grown?
  • Your emergency fund or other savings accounts: You might be saving for other goals than retirement, like buying a house or building up a cash reserve to help you handle the unexpected. How much have you saved, and how have the relevant markets (e.g., real estate) changed? Did you make any withdrawals this year? If so, what will it take to replenish the account?

As you look through your savings accounts, don't forget about plans from past employers. You may want to roll over a 401(k) from a previous company into your existing one or an IRA.

If you use something like a flexible spending account (FSA), check to see if those funds will roll over into next year. If not, you might consider making doctor and dentist appointments (as long as they meet the spending rules of the account) to use up any available cash before the end of the year.

It's Not Too Early to Think About Taxes

Tax season won't come until spring — but it's never too early to think about taxes on your investment accounts (and others, where applicable). You may need to take action with your investments before December 31st if you want to set yourself up for the lowest possible tax payments when you file in April.

Some things you may want to consider include:

  • Rebalancing your portfolio's asset allocation
  • Talking to a professional to see if tax-loss harvesting (selling off certain investments that have taken a loss) is a reasonable strategy for your situation
  • Maxing out contributions to your tax-advantaged accounts, like 401(k)s, 403(b)s, health savings accounts (HSAs) and some IRAs

Other money moves might help reduce your tax burden, like making donations to charity, making a purchase if it can be filed as a business expense, or contributing to a 529 plan if you have children.

Of course, all of these options will need to be considered in conjunction with your overall financial plan. Will increased tax-benefited contributions affect the availability of funds needed elsewhere? How you balance everything will depend on your individual goals, income, savings and budget, among other things. You may want to consult with a tax professional before making any final decisions.

Review Your Insurance Coverage

It's a good idea to take a look at your insurance policies from year to year. Do you have enough coverage to adequately help protect yourself, your family, and your assets or property? Here are some things to consider as you look at your insurance as part of your personal finance review:

  • Did you buy a new car? Is the insurance policy adequate? If you have an older car that dropped in value, do you need a smaller policy?
  • Did you make home renovations — or do you plan to? Will you update your homeowner's insurance to cover the value you added to your property?
  • Did you have a child or do you want to expand your family in the coming year? Do you intend to update your life insurance policy to accommodate those changes?

Starting to think about these key financial items now is one thing you can do that could help you financially prepare for the new year. Not only will you know more about how well you've used your money, but you can also give yourself some time to look ahead — and that head start could help you prepare for the next year's unexpected adventures.

IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation. 

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