Christmas and New Year’s are just around the corner. With a about two weeks to go before 2014, I’ve already had several requests for help in getting financial houses in order for the new year.
However, before focusing on New Year’s resolutions, I think everyone needs to complete a year-end analysis. Here is a checklist of five things that you should review before the year ends:
1) Your budget – Did you save the money that you wanted to? Pay off the debt that you needed to? The end of the year gives you a solid end point to assess whether the financial year you had matched the goals you set at the outset of 2013. Didn’t have a budget or financial goals? You know where to start next year.
2) Will and Trust – As I’ve said before, these two essential documents play a critical role in a financial plan. More importantly, they need match your current financial life. Getting married, divorced, or having kids makes a big difference in your estate plan. So match your documents accordingly.
3) Insurance Documents – Just like your Will and Trust, your insurance documents should cover your current situation. Therefore, review your life and disability insurance policies to make sure they protect your current income and those dependent on it. Your renters or homeowners insurance should insure any additional big purchases your made during the year. And lastly, you should review your health insurance policy for any upcoming changes. Ben and I just examined our health insurance plan for 2014 and saw that the cost went up by 37%. Without doing that review, Ben would have had quite the surprise come his first check in January.
4) Investing Portfolio – How did your investing portfolio do this year? You can find out how your investments fared by comparing them to an appropriate benchmark. If you have invested in index funds like I suggest, you can easily find your benchmark. If you have your investments in a retirement plan, your annual report from the plan administrator should also give you this information. If all else fails, you can look up your prospectus and figure out what kinds of stocks, bonds, or both make up your mutual funds. From there, you can look for a comparable index. For example, if your mutual fund contains a bunch of large cap stocks, you can compare it to the Morningstar Large Cap Index or the Lipper Large-Cap Core Index. You may also use this time to rebalance your portfolio (i.e., match your asset allocation percentages to your investment strategy), if you haven’t done it in a while.
5) Tax Documents – The New Year, especially for people like me, means that tax season has begun. So while you are doing your end of the year housekeeping, start organizing any documents that you may need: receipts for business or unreimbursed employee expenses, child care expenses, or charitable contributions. Getting a jump start on these documents affords you more time to review and categorize them later and lets you know whether you need to make a last second charitable contribution or spend some money out of your HSA.
Doing a financial review now will help you get your house in order for the new year and give you meaningful information to set your 2014 goals. So save some time amidst the last minute shopping and holiday partying to look over your current documents.