Take a Stroll Through Your Finances

Oh, the memories! Some may be good, while others may be cringe-worthy. Conducting a year-end financial review can tell you whether you’re making progress toward your goals or whether you need to make adjustments to your spending and investment strategies.

Begin with a Budget Check

Is your spending plan working? Tracking your expenses over the past year should be part of your review. To find out exactly where your money is going, check your bank and credit card statements against the estimates in your budget. If they don’t match up, you may have to revise your plan or cut back on your spending. Changes in your personal situation, such as marriage, divorce, the birth of a child, retirement, or relocation, may also require revisions to your spending plan, so consider these events in your review.

Out with the Old

Did you reach some of your short-term goals during the past year? Maybe you finally saved enough to buy a new car or put a down payment on a home. Because goals aren’t static, they may change several times during your lifetime. You’ll probably want to revise your financial plan to reflect the changes in your objectives. No matter what other goals you have along the way, you’ll want to make sure you’re saving enough to fund the retirement you want. Create a strategy that will help you live comfortably for as many years as you’re retired.

Investment Check

Are your investments living up to your expectations? Selecting the right investment mix can help you reach your goals and improve your chances for having a comfortable nest egg. You’ll also want to make sure the investments you chose are performing the way you expected by comparing your investments’ returns to an appropriate benchmark index. Your exposure to investment risk is another thing to consider. A shift in your asset mix or your risk tolerance may leave you with more or less risk than you intended. Rebalancing your investments can bring your asset allocation back in line with your risk tolerance.

Around Your Estate

Are your estate planning documents up to date? A year-end review can be helpful, especially if your personal situation has changed. Events such as births, deaths, divorce, or remarriage may require updates to your plan. You (and your spouse, if married) should both have wills stating how you want your assets distributed and appointing a guardian for any minor children and an executor (or personal representative) to settle your estate. You may also want to include tools in your plan, such as trusts and life insurance, to help protect loved ones. During your review, make sure the beneficiary designations are up to date on assets that don’t pass through your will, such as retirement accounts and life insurance policies.

A Layer of Protection

You don’t know what the future holds, so it’s in your best interest to prepare for the unexpected. Disability and life insurance can help your family maintain its standard of living by replacing your income should you become disabled or die. A power of attorney appoints someone to manage your affairs if you become incapacitated. A living will or durable power of attorney for health care expresses your wishes regarding health care decisions.

A year-end review can help get your finances off to a good start in the new year. Rebalancing a portfolio may create a taxable event if done outside of a retirement account.