Ask an ally: Am I missing this important year-end financial step?
As you start planning for next year, it may be time to review your finances. But beyond the numbers, it can also be a good idea to reflect on the behaviors and actions you took that led you toward or away from your financial goals. Taking stock of your money habits and underlying emotions is just as important as reviewing your finances. We spoke with Ally Invest Senior Financial Advisors Dimitri Pan and Gene Hughes for their insights on how to review your financial status and behaviors before the new year.
Check in with goals, finances and behaviors
To get started with your own financial check-in, begin with these three steps.
1. Think about your values and goals
When it comes to your finances, keeping your personal values and your life goals front and center will help you stay focused. To assess whether your aspirations have changed, ask yourself a few questions:
What life changes came your way this year?
Do you anticipate any big changes on the horizon?
What goals did you set for this year, if any?
What is the current status of those goals?
What do you want to accomplish in the year ahead?
Take a look at how these answers work together and see whether there are conflicts. If you’re planning to buy a house but your savings goals aren’t where you’d hoped they would be, for instance, now might be the time to buckle down and develop some saving habits.
2. Look at your current financial situation
Record your current income, outflow and other financial details in a secure record to reference later. Be as comprehensive as possible, especially with spending. Approximating your expenses can hinder your ability to accurately understand how much money you have available to apply to your other goals.
Approximating your expenses can hinder your ability to accurately understand how much money you have available to apply to your other goals.
3. Reflect on your behaviors
Many of our financial habits are deeply ingrained in our histories. Often, in order to change a behavior, you may need to address it head-on — and understand what from your past is driving it. Taking spending as an example, reflect on questions such as:
How was your spending over the last year?
Do you feel comfortable with your expenses?
Was your spending in alignment with your values?
Overall, consider which behaviors you want to start, continue or end in the new year. Making this list can help remind you of your goals and realign any financial behaviors that may be hindering your progress. And if you need a little extra structure, try a budgeting template or a new-year financial challenge.
Resolve to re-assess
Quarterly assessments on your own time can be helpful to maintain awareness of your progress, so consider scheduling those out for yourself. You can also set goals on a 3/6/9-month basis to check in on throughout the year. As financial advisors, we like to do annual comprehensive check-ins with our clients, as well as discuss new life events (such as a new baby, promotion, divorce or loss) as they come up through the year. We also encourage people to do their own check-ins between meetings.
Throughout the year, a few different approaches can help you stay on track:
Embrace teamwork with others. If you have a partner or family you share finances with, talk about your goals to reach agreement and work together to pursue them.
Set up automations to help you accomplish more. Refine your use of tools like buckets and boosters or use direct deposit to split your funds between checking and savings.
Consider trade-offs you can take if certain situations arise, like if you miss your three-month goal and need to cut back in one area to meet it. Or, if you choose to prioritize one goal, another may need to take a back seat.
End-of-year check-in considerations
Once you’ve addressed your own habits and goals, a few tactical items are next on your check-in list.
Take a look at your IRA contributions
Take advantage of employee benefits (such as wellness programs) before the end of the year.
Rebalance your investment portfolio
Review your tax information
If you received a promotion or raise toward the end of the year, re-assess your 401(k) contributions
Check if any of your retirement accounts have Required Minimum Distributions (RMDs) after a certain age
Your year, your goals
Avoid holding yourself to arbitrary expectations or defining “good” and “bad” behavior. Your goals should be personalized for your situation, not others' expectations. And remember, your goals don’t need to be based on external measures of “success.” Try to think about self care, vacations and reducing your stress levels as important goals to accomplish, too.
