The End of the Year Financial Review: A New Beginning
With 2021 in the books, you should love to look at your finances and be on plan for 2022. This is the time of year that most people anxiously await, the end of the year. It's a time to take stock of your life and be happy about what you have accomplished. Things may not have gone exactly as planned but there is always next year, right? Another way to look at it is to question: How much money do I have leftover after all expenses are taken care of? To help you prepare for a financially successful year, meeting with your financial advisor and completing a financial review at the end of the year is important. But, how do you start? We all have to start from somewhere. As 2021 comes to a close, there are some key money moves you can make to finish the year strong and set yourself up for success in 2022. What do you review at the end of the year? Start by checking on the progress you’ve made: financial goals, savings, credit report, budgeting, and investments to highlight the areas that need improvement and update.
Review your credit report
The end of the financial year also means that you can start fresh with a new budget or credit score. While it's a good idea to review both, let's start with your credit score. Your free annual report will include a credit report with three major components: personal information, inquiries, and public records. The information section includes your name, previous addresses, and social security number. The inquiries section lists all the companies that have requested your credit report in the last year while you were applying for a loan or conducting some other form of business with them. The public records list any lawsuits, bankruptcies, foreclosures, and judgments. These are all things that can drastically lower your credit score, so you want to make sure they aren't on there if it is accurate. According to the latest studies from the credit bureau Transunion, more than 20% of people have an outdated or inaccurate credit report. That means that those people might not be able to secure a loan because financial institutions view them as a bad risk due to a poor, previous lending history. It also means that they aren't getting as many discounts on insurance. Going through your credit report and making sure it is accurate should be the priority.
Debt review and pay off the plan
Take a look at your debts, including those from credit cards and loans. You can use the Avalanche Method where you list the debts from the highest to the smallest or the Snowball Method which lists them from smallest to largest. Start repaying those with the highest interest rates first. Interest adds up over time -- so every dollar you pay down goes a long way! You could save thousands of dollars throughout your lifetime just by making this one change. If you can't repay all your debts at once, that's okay too. Just focus on repaying the ones with the highest interest rates first, while paying a little bit to those with lower rates until you've repaid everything.
Open a Savings Account
To get the most out of your money, think about how much you want to save. Instead of piling up large amounts of cash, opening a savings account will allow you to be financially ready for unexpected emergencies. Having a savings account with M C Bank can help you easily manage your daily expenses and divert any remaining cash in a short amount of time.
Review and automate your savings
It is key to come up with a plan, and then to stick with it. There is a difference between making a budget and saving money: the former only plans for how you will spend your cash, while the latter puts said cash in an account that is unreachable for expenses. As far as money-saving automation is concerned, I'm sure anyone who has tried to save up for a special item will tell you that it's challenging. Sometimes even the best of us can't help but go spend some cash on something frivolous and unnecessary. When this occurs, it's good to have something set up so you won't forget about your savings goals, and this is the saving automation we are talking about.
Review the progress made on financial goals
Every year, most people set financial goals. When you review the progress made on your goals, it is easier to stay motivated and committed to achieving them. The following steps will help you review the status of your financial goals: 1) Review each goal that you have written down to see how far along they are today. 2) If you feel like you are behind on a goal, make sure to set up an action plan to get you back on track. 3) When setting financial goals, make sure that the goals that you initially come up with are realistic. For example, having a goal to have $1,000 saved by the end of the month might seem achievable at first, but it is not very likely. Aim for goals that are challenging, but still reasonable.
An investment means that you are putting your money into something where it grows over time, and you get a return on it. Generally investing is done through saving, except for investments where growth is instant, but guaranteed. Think of anything where people invest their time & effort, like the stock market, working for someone, or starting a business. When people go to work and do their job to be paid for doing so, that's an investment: They are putting their time and effort into something where they expect a future return on it, i.e., a paycheck, that they can then use to pay their monthly expenses, buy things or, invest it. It’s good to review your investments at the end of the year to identify where you stand in relation to the goals you’ve set.
A budget is a plan of how you will spend your money each paycheck or month. It consists of income, expenses, and also how much you have left for savings. A review of your budget looks at how well it’s working balancing your income and expenditures. This needs to be done regularly as well as you need to make sure that your business is not spending more than it has coming in. By tracking how much money is going in and coming out each month, you get a very clear picture of what you’re financially capable of doing each year.
Tackling your yearly budget involves two simple steps:
• Review your budget for the past year
• Use it to build a budget for next year
During a budget review, both the income and expenses need to be looked at carefully. If your income is greater than your expenditures then this means that there will be savings (and vice versa).