As the year draws to a close, now is the perfect time to take a step back and see how you’re doing financially. Conducting an annual financial review helps you identify potential issues, celebrate your successes no matter how small, and set the stage for a better future.
The Foundation of Your Finances: Income and Expenses
Take some time to go over your income sources. Have there been any significant changes to your income throughout the year? Perhaps a promotion, a new job, a side hustle, or an investment? Understanding your income situation is the first step to making informed financial decisions.
The next step is determining where your money goes. This is where a budget tracker will prove useful. It will show you how much money comes in and out and identifies certain areas that need adjusting.
Categorize your spending. Break them down into easily identifiable parts such as housing, utilities, food, education, loan repayments, and other similar expenses. Check out where you’re overspending and do your best to make certain adjustments moving forward.
Understandably, certain bills, like housing and utilities, should not be sacrificed. But everything else, especially non-essential expenses, can be minimized with careful planning and a bit of sacrifice.
Hit the Target or Miss the Mark?: Evaluate Your Financial Goals
Reflect on the financial goals you set at the beginning of the year. Did you achieve them? If not, what were the obstacles?
An honest assessment of how you manage your finances will help you address issues and concerns that prohibit you from reaching your goals in the future. By honest assessment, we mean facing the brutal facts, no matter how uncomfortable they might make you.
On the other hand, were there goals that you achieved within the year? How did you achieve it? What were some of the things you did that made you successful at it?
Evaluating your strategies and actions objectively will help you set financial goals for the following year, as well as devise clever strategies to hit the mark.
Unburdening Yourself: Debt Management
Debt can be a heavy burden, but it doesn’t have to be a lifelong one, especially if you can come up with a sound repayment plan.
Like credit cards, for instance. Review your credit card statements. Do you have high-interest balances? If so, it’s time to create a plan to pay them off as quickly as possible. You might want to consider consolidating your debt or using balance transfer offers to lower interest rates making credit card debt more manageable in the coming year.
Do you have any loans and mortgages that also need to be repaid? Take a look at your loan and mortgage balances. Are you making timely payments? If you’re struggling, reach out to your lender to discuss potential repayment options. Generally, licensed and legitimate lenders, like Goldstar Credit Toa Payoh and other areas in SG, are willing to work with you to help make loan repayment easier. All you need to do is reach out to these types of lenders.
Future Secure: Savings and Investments
Saving and investing are crucial for long-term financial security, regardless of your location. This should be one of the top goals of any individual so they can secure their future.
Financial security generally comes with having the means to provide a comfortable life for your family, not worrying about money when unexpected things happen, and making enough money to retire comfortably and enjoy your golden years.
Here are some practical ways of going about it:
Emergency Fund
- Three to Six Months’ Worth of Expenses: Aim to have an emergency fund that can cover three to six months’ worth of your living expenses.
- High-Yield Savings Accounts: Consider opening a high-yield savings account to maximize your returns on your emergency fund.
Retirement Savings
- Employer-Sponsored Retirement Plans: If you’re in Singapore, maximize your contributions to the Central Provident Fund so you can take advantage of employer matching and government subsidies.
- Private Retirement Accounts: Explore options like Supplementary Retirement Scheme accounts to supplement your retirement savings.
Investment Portfolio
- Diversification: Spread your investments across various asset classes to reduce risk. This way, if one avenue tanks, you have other assets to cover your loss.
- Regular Review: Regularly review your investment portfolio to ensure it aligns with your risk tolerance and financial goals.
- Professional Advice: Consider consulting a financial advisor to help you make informed investment decisions.
Maximizing Your Returns: Tax Planning
As we enter the new year, tax season is just around the corner before you know it. So, it’s time to get your ducks in a row and devise a plan for dealing with your obligations.
- Gather Tax Documents: Collect all your tax-related documents, including W-2s, 1099s, and receipts for deductions and credits.
- Consult a Tax Professional: A qualified tax professional can help you identify legal tax-saving opportunities and ensure that you’re taking advantage of all available deductions and credits.
Charting Your Course: Setting New Goals
Finally, after having gone over all of that, it’s time to look ahead and reassess your financial goals.
Have your financial goals changed? Perhaps you’re planning to buy a house, start a family, or retire early. Adjust your goals as needed and create an actionable plan to achieve them, keeping in mind SMART goal setting: specific, measurable, attainable, relevant, and time-bound.
Also, creating a comprehensive financial plan will help you stay on track and make informed decisions. Consider working with a financial advisor to develop a customized plan.
Wrapping It Up
Following these steps ensures you have a thorough review of your financial situation this year. This process not only helps you understand where you stand financially but also prepares you for the year ahead.
