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Conducting a Year-End Financial Review

Written by Laura Martinez - 12 Comments

Conducting a Year-End Financial Review

Last week, I mentioned that now would be a good time to take care of any financial task you needed to do before the end of the year. One of these tasks was creating reasonable financial goals for next year. We’ve done that for the last few years, and it’s helped us have a general road map when it came to our family’s money.

One way we’ve been able to create and reach these financial goals is by first examining what went on during the previous year. This process involves looking at our monthly expenses, looking at our retirement accounts, and discussing some of our long term goals. We look at what went well, what didn’t go as planned, and how we could improve.

Reviewing monthly cash flow

Examining monthly income

I’m surprised at how many people view monthly income as a fixed number. If you’re willing to work hard and be creative with your time and effort it doesn’t have to be that way. Remember, you can only cut costs so much, you have much more room and control with increasing your income.

Here are some ideas:

  • Argue your case for a raise – Don’t just go to your boss and demand a raise, even if you’ve done the work to deserve one. Instead, create a compelling case of why it’s a good investment for the company money to an extremely productive employee (you) with proper compensation. Be prepared to back up your case with hard numbers and facts. Have you’ve gone above and beyond to help your department exceed goals? Have you demonstrated your leadership skills?
  • Start another income stream – Do you have a talent or skill that can earn you some extra money on the side? While many people are afraid of becoming full-blown entrepreneurs, they can still help themselves financially by thinking like one and diversifying their income.
  • Clean the clutter and earn cash – If you have junk at home that’s in good condition, you really should look into selling some of it off and getting at least some of your money back. You could use that money for some of your family’s financial goals and you’ll clear some space in your house.

We also look at trends with windfalls, bonuses, and raises. While our policy is not to include them when planning our monthly budget, it gives us an opportunity to review if we spent them wisely or not.

Optimizing monthly expenses

Here’s where we spend time analyzing and brainstorming. As we were doing our monthly reviews, we keep a record of our spending habits to see if there is something we could improve upon for the next year. For 2010, here are some of our biggest expenses that we could optimize better.

  • Food and dining – For 2010, 14% of our spending went under this category. The bulk of it (70%) was for groceries. The remainder was for eating out at a restaurant. Cutting back on some of our eating out expenses is a goal, but we’re also looking at improving our culinary skills. If there is a dish we really enjoy, we’ll use sites like CopyKat to see if they have the recipe on there. If so, we’ll try to learn it. We’re also hoping to have more potlucks at our home next year,which provides the social benefits of a night on the town without the added cost.
  • Travel – We love traveling, and we also know that planning ahead a bit more will help us stretch our travel budget. We’ll be a bit more aggressive with our Priceline bidding and we’ll spend some time in travel discussion forums to get more tips on how to maximize our rewards.
  • Electronics – We got a new video game console this year and have picked up several games to play on it. Looking forward, we’ll try to wait out new releases and grab more pre-owned games for it to save some cash.

I also find that looking at our expenses helps us sort out what’s important to us and what isn’t. Simplifying our lives removes some unnecessary expenses and frees up money for us to spend what we love.

Adjusting retirement accounts

If you haven’t done so already, checking your retirement balances and contributions is an important end-of-the-year financial task. If you received a year-end bonus, you may want to go ahead put some of it into your retirement to max out your contributions for the year. Likewise, if you’ve received a raise, can you increase your regular contributions?

We also like to review our portfolios’ performances to see if we need to adjust the funds we invest in. Over the course of the year, certain funds in your portfolio may outperform others. Over time, this can cause your asset allocation to shift a bit from the your targeted mix.

Asset allocation is vital because it helps you to control your expected risk/return levels. If things get out of whack, you could be taking on far more risk than you think. Don’t know your own portfolio’s asset allocation? Try out MorningStar’s X-Ray tool – you can sign up for free.

Long-term goal progress review

Last, but certainly not least, we look at some of the progress (or lack of) for our financial goals. What are some of our long term goals that we’re looking at right now?

  • Car replacement fund – We want to avoid having car payments again while having a reliable car. This past year we bought another car when my husband’s car was wrecked. It was great to grab something that we could use and that was within our budget. We’re now saving up to replace my current vehicle.
  • Freedom fund – We would like to have some money set aside in this account so both of us have the freedom to work scale back and/or work from home if necessary.

While we have some other goals that we want to reach, these are two areas where we could do better in terms of contributions. What are some of your future goals that you’ve trying to reach? How hard or easy was it to get started? What has been your progress this year on it?

Your thoughts on year-end financial reviews

Do you do a year-end financial review? If you’re part of a couple, is this a joint exercise? What have been the hardest parts? Any tips for making it easier? Has doing a year-end review helped you reach your financial goals?

Published on December 14th, 2010
Modified on December 17th, 2010 - 12 Comments
Filed under: Planning, Saving & Investing

About the author: helps families achieve financial freedom by sharing tips for reducing debt and building freelance income over at Couple Money.

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12 Responses to “Conducting a Year-End Financial Review”

  1. 1
    Richard Says:

    I have conducted a similar year-end financial review but with a wrinkle. I need some advise from anyone on this blog who think she or he can help. Briefly, here’s the situation. I “inherited” a vehicle from my ex-wife through divorce. She declared bankruptcy and rather than have the vehicle included (which has my name on the lien as well as hers)in that which would have killed my credit, I took over the payments. The payments are very high are a strain on my budget. I have some options and that’s where you come in. Which of the three following choices make most sense. One, just pay it off and tighten my belt. I have 11 payments left. Two,use home equity credit to pay it off, and then pay that off over 20 months, three, use my savings to pay the balance of the car loan off, then try to pay myself back. I have another vehicle and don’t need this van though it’s nicer than my car. Any suggestions will be appreciated. Thanks.

  2. 2
    Nickel Says:

    Richard: What about selling it and using the proceeds to help pay off the loan?

  3. 3
    Richard Says:

    I knew I forgot to put something in my comment: selling it makes sense except that the loan is upside down by about 6K. I’ve tried to sell it and haven’t been successful.

  4. 4
    Laura Says:

    @Richard: I would second Nickel on his suggestion – that might be the least painful method for you financially.

  5. 5
    Richard Says:

    The loan is upside down and selling the car would not pay off the debt. I’ve tried to sell it unsuccessfully.

  6. 6
    Your Own Retirement Says:

    Hopefully 2011 will allow people to strengthen their personal finances a bit more so they can really start focusing on saving some money and building up their nest egg again.

  7. 7
    Grace Says:

    I would either sell it and pay it off even if upside down and pay the difference from savings if that did not bring my savings down to a dangerous level.

    Or sell other car that is not as nice and use that money to pay it down and tighten the belt and pay off as fast as possible.

  8. 8
    Sandy @ yesiamcheap Says:

    I do this every year. It starts with my 401K allocation and moves to FSA, healthcare expenses, auto expenses, overall spending debt repayment goal setting, savings and whatever else I can think of. I like to make sure I’m heading in the right direction.

  9. 9
    Courtney Says:

    I do a year end financial review, but it is more a presentation of “here we are, and this is what we’re going to do next year.” I am the household CFO and I present to the CEO (hubby) since I handle all the bills/budgeting etc. I have little excel charts and everything :-)

  10. 10
    Kevin @ Thousandaire.com Says:

    I haven’t done my planning yet, but I’m planning on it. The one thing I noticed on your planning was video games. I am going to try to make money on video games because I’m going to sell my Wii. I never play that thing.

  11. 11
    Michelle Says:

    we did our review and included our progress-to-date against our debt load (non-first-mortgage debt that is) – started in Sept 2008 at $64k and we are on track to PAY IT OFF by September 2011. Now our financial goals for 2011 are pretty clear – GET IT DONE and get our emergency fund build. Husband is all about what extra side jobs he could run to get us through both goals by September!

  12. 12
    Janet Says:

    I’m definitely doing a post-holiday/ new year financial review. I really want to hone in on flexible expenses – like food and gas … and see how I can do more with less. I want to free up funds to pay off some debt and increase savings.

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