How to Do a Year-End Financial CheckupDec 28, 2020
It’s that time of year. The holiday season is here and another year is winding down. How’s your financial health? While a financial checkup probably isn’t the first thing on your mind right now, the end of the year is the perfect time to do a quick review of your financial situation. Reflect on what’s behind you and plan for the year ahead. You can make any necessary tweaks to your savings strategy, debt repayment plan or budget — and hit the ground running when January arrives. A year-end financial checkup doesn’t need to be a huge time investment and it can be done in six simple steps. Let’s get started.
Your 6-step year-end financial checkup
1. Compare what you own to what you owe
Otherwise known as calculating your net worth, this is your chance to gauge your overall financial health. Is your net worth positive or negative? Is it growing or shrinking over time? The calculation is simple:
Your Financial Assets – Your Financial Liabilities = Your Net Worth
Assets will include your checking and savings account balances, the market value of your house or condo, RRSPs, GICs, TFSAs, etc. Liabilities include any outstanding personal or mortgage debt, child support, alimony, bank loans, federal or provincial student loans, etc.
You can simplify this task by using this net worth spreadsheet from the personal finance website Squawkfox.
2. Review and revise your financial goals
Goals, resolutions, promises…whatever you call them, it’s a good idea to check in regularly to track your progress. 2020 has been anything but a normal year for most people. If you have suffered any kind of financial setback due to the pandemic, now is the time to ask yourself if your financial goals are still relevant and realistic. Check-in on savings, debt repayment, spending levels, etc. If you haven’t made the progress that you expected, you’re not alone.
3. Plan for the year ahead
The idea here is to avoid any unexpected and unwelcome financial surprises over the next few months, if you can. For example…
- Make sure you have a year-long plan in mind (or on paper) that takes into account your existing financial situation and any contingency plan you may need for an unexpected emergency such as a job loss, illness or longer-term pandemic shutdown. If you don’t have an emergency fund, now is the time to begin making regular contributions, if your finances allow.
- Take note of any big expenditures coming up. Replacing a vehicle or fixing a leaking roof can hit your budget hard even if you’ve planned for it.
- Will you need to make any important money decisions this year? Maybe you’ve decided to switch jobs, buy a home or move to a different city or province. Your mortgage may be coming up for renewal or your spouse is starting maternity leave.
- What’s on the calendar for the rest of the year? Back-to-school costs, kids’ extracurricular fees, birthdays, weddings, holidays, vacations and the like — it all adds up. Consider setting up separate savings account for irregular expenses, like vacations, birthdays and holidays. The more you can save ahead of time, the less likely you’ll rely on credit.
4. Check in on your debt
If you’ve figured out your net worth, you already know how much you owe. But what’s your plan for repaying that debt? Make sure you have a debt repayment strategy that works for you and motivates you. What about your credit behaviour? Are you relying on credit cards or payday loans to make ends meet? Be on the lookout for warning signs of debt problems.
Finally, don’t wait to get help if you’re having trouble managing your debt. A Licensed Insolvency Trustee (LIT) will meet with you initially for no charge and no obligation on your part. An LIT will make sure you understand all available debt solutions and help you choose one that fits your situation and allows you to become debt-free.
Here’s a deeper look into what happens when you meet with an LIT.
5. Refresh your budget so you’re ready for your next financial checkup
You’ve reviewed and reassessed, now it’s time to refresh. Ask yourself, Is my budget still working for me? You may need to cut out some expenses altogether, or rethink how you allocate them in your budget. For example, you might need more to spend on groceries but less to spend on cable. You’ll be in much better shape at the end of 2021 if you have a budget in place that works for you, and balances your income, spending, debt repayment, savings and other financial obligations and goals such as an investment plan or retirement savings.
6. Check your credit score
This is an integral part of any financial checkup because your credit score is an indication of your financial health. A good credit score shows lenders that you’re a low-risk borrower and that you use credit responsibly. A not-so-good credit score means you need to look a little deeper into your credit report. Once you understand what’s lowering your score, you can take the necessary steps to improve it. Checking your credit score regularly also alerts you to errors, fraudulent charges and identity theft.
The good news is, there’s more than one way to check your credit score for free. And it’s simple. Your bank may offer this service, or you can go to an online personal finance company like Credit Karma or Borrowell. You can also get a free copy of your credit report by mail once a year directly from credit reporting agencies Equifax and TransUnion.
Did your financial checkup uncover unwelcome debt problems? Book a free consultation with a Licensed Insolvency Trustee to review your challenges and discuss available solutions.