End of the Year Financial Planning Checklist


The year is quickly coming to an end, and while New Year's resolutions to start taking better care of your finances are well and good, the average New Year's resolution is abandoned within one month.  With that in mind, there are a number of financial issues to address before the New Year, so you can start fresh – with everything in order.  This list is by no means exhaustive, but it at least covers the basics.

Review your budget, or create one if you don't have one.

A budget isn't something that's just for show, so taking some time at the end of year to ensure that your spending is line with your budget is a good idea.  In the scenario that you are overspending, this will give you the opportunity to determine where overspending is occurring, and how you can reduce it.  If everything is on track, seek out areas where you can reduce unnecessary spending, or find opportunities to contribute to retirement, health savings, or other investment accounts.

If you don't have a budget yet, take some time to look back at your spending for the year, and determine if your spending is appropriate; basically, that you're not spending more than you're making.  With that information, itemize your spending into broad categories, and create a budget.  It doesn't need to be perfect, but having a loose plan for monthly spending can go a long way toward achieving your financial goals.

Set your financial goals for 2019.

Many people say things like “I'm going to save more this year”, or “this year I'll pay off my student loan debt,” but these types of broadly defined goals generally lead to failure.  When setting financial goals (really any goals for that matter), I find that following the SMART goals model leads to greater success.  For those unfamiliar, SMART goals are: Specific, Measurable, Achievable, Relevant, and Time bound.  So, rather than something as broad as just saving more money, a SMART goal could be: “I'm going to save $100 per month starting at the end of January”, or “I'll increase my monthly student loan payments by $200 so they will be paid off by the end of the year.”  Setting goals in this manner allows for modification over time, but creates actual rules for the goal to be achieved in the time frame decided upon.

Review all debt and focus on reducing bad debt (check your credit score while you're at it).

It can be easy to have debt payments on autopay, and completely forget that they even exist.  While autopay is a very useful tool, it's good to review everything to ensure that the only debt you are carrying is good debt.  The following rule is a good way to determine if debt is bad or good: bad debt does not increase your net worth, and has relatively high interest rates; good debt increases your net worth, or has relatively low interest rates. 

Upon reviewing all debts, check your credit score and identify any bad debts that you are carrying.  Creating a plan to reduce and eliminate those debts can go a long way to improving your credit score, and will pay off in the long run by reducing the amount of unnecessary interest you are paying. 

Start contributing to a 401(k)/IRA or increase your contributions.

Not everyone has access to an employer sponsored retirement plan like a 401(k), but everyone does have the ability to contribute to an IRA.  If you have already been contributing to one of the two, then now is the time to see if there is room for you to contribute more on a monthly basis.  If you are not contributing, then now is the perfect time to create room in your budget to begin contributing.  Small amounts on a monthly basis can add up to a lot over time, so starting small and steadily increasing over time is a good method for getting started.  For reference, the maximum annual contribution to an IRA is $5500, and for a 401(k) it is $18,500.

Contribute to an HSA.

We all know healthcare is expensive, but HSAs have a number of benefits with regard to paying for it.  I won't get into the nitty gritty details, as the topic of HSAs has been covered in a previous entry, but the end of the year is a good time to see if there is room in your budget, or excess cash on hand, for an HSA contribution.  Apart from creating a tax-free way to pay for qualified medical expenses, an HSA also creates an instant tax deduction above all other deductions.          

Presented by Erik Moore