Although the year is drawing to a close, you still have time to review your finances. Pausing to reflect on the financial progress you made in 2017 and identifying adjustments for 2018 can help you start the new year stronger than ever.
How healthy are your finances?
Think of a year-end review as an annual physical for your money. Here are some questions to ask that will help assess your financial fitness.
Do you know how you spent your money in 2017? Did you make any progress toward your financial goals? Look for spending habits (such as eating out too much) that need tweaking, and make necessary adjustments to your budget.
Are you comfortable with the amount of debt that you have? Any end-of-year mortgage, credit card, and loan statements will spell out the amount of debt you still owe and how much you've been able to pay off this year. Are you applying the right amount of payments toward “bad credit” as opposed to paying off the “good credit”. Are you maximizing the amount of good debt, and is it time to make adjustments?
How is your credit? Having a positive credit history may help you get better interest rates when you apply for credit, potentially saving you money over the long term. Check your credit report at least once a year by requesting your free annual copy through the federally authorized website annualcreditreport.com.
Do you have an emergency savings account, and how has your need changed this year? Generally, you should aim to set aside at least three to six months' worth of living expenses – although this is highly individualized based on job situation for both spouses, mortgage debt, flexibility, etc. Having this money can help you avoid piling up more credit-card debt or shortchanging your retirement or college savings because of an unexpected event such as job loss or illness. On the contrary, having too much in cash can hinder your retirement planning. And, what comprises the emergency account, and is it as effective as it should be?
Do you have an adequate amount of insurance? Your insurance needs may change over time, so it's a good idea to review your coverage at least once a year to make sure it still meets your needs. This includes a variety of forms of insurance, including property and casualty, disability, and life insurance. Have you updated your elections with your employer in the open-enrollment period based on any changed circumstances?
Have you minimized your income taxes? Did you take advantage of the deductions available on Schedule A, and did you take into account strategies that considered deductions for the previous year and the following year? If you are self-employed, did you maximize your legitimate business deductions, including travel, meals and entertainment, and home office? If you made charitable contributions, did your record-keeping provide you with an effective way of maximizing these deductions – both the cash and non-cash contributions? What strategies should be doing this year when looking at your tax situation in 2017 versus 2018?
How wealthy are you really?
It's easy to put your retirement savings on autopilot, especially if you're making automatic contributions to a retirement account. But market swings this year may have affected your retirement account balances, so review any statements you've received. While your investment performance should be reviewed with a long-term perspective and there are many endogenous factors that are generally more determinant of your financial situation, you should review your investments. How have your investments performed in comparison to general market conditions, against industry benchmarks, and in relation to your expectations and needs? Do you need to make any adjustments based on your own circumstances, your tolerance for risk, or because of market conditions*?
Finally, look for ways to save more. For example, if you receive a pay increase this year, don't overlook the opportunity to increase your employer-sponsored retirement plan contributions. Ask your employer to set aside a higher percentage of your salary. If you are not taking advantage of Health Savings Accounts, you should review what your employer offers or consider the use of a HSA outside of work.
Are you on track for retirement? Have you updated your net worth projections or monte carlo analysis to determine if you are on track to meet your goals?
How wise are you about financial matters?
What you don't know can hurt you, so it's time to honestly assess your financial picture. Taking into account your income, savings and investments, and debt load, did your finances improve this year? If not, what can you do differently in 2018?
What are your greatest financial concerns? Do you have certain life events coming up that you need to prepare for, such as marriage, buying a home, or sending your child off to college? What do you need to do to maximize your income tax deductions this year? You can't know everything, so don't put off asking for assistance. It's a wise move that can help you prepare for next year's financial challenges.
Year-End Financial Checklist
X if done
|Review your benefits during your employer’s open enrollment season, and make any necessary changes. Coordinate with your overall planning for next year.|
|Use up any contributions to your flexible spending arrangement (FSA) before the use-it-or-lose-it deadline.|
|Update estate planning documents such as wills, trusts, and health care directives if your situation has changed.|
|Review and update beneficiaries for assets such as retirement accounts or life insurance.|
|Make year-end donations for charity and gather records for contributions made throughout the year. Coordinate with your own income tax situation.|
|Consider gifts to family members. For 2016, you may give up to $14,000 to each individual without paying gift taxes.|
|Begin organizing your financial records for tax time.|
|Check your Social Security Statement at ssa.gov to find out about your future benefits.|
|Determine if a Roth Conversion (partial or full) makes sense for your situation.|
|Determine if additional contributions to retirement plans and IRAs are available and wise.|
|Review whether additional estimated taxes should be paid.|
Oasis Wealth Planning Advisors, LLC appreciates contributions by Broadridge Investor Communication Solutions, Inc. Copyright 2017. Modifications made by advisors at Oasis Wealth Planning Advisors, LLC, a fee-only financial planning firm covering Orlando and Tampa, Florida and surrounding areas.