A New Year of Money: Evaluating Your Financial State

by Gina Blitstein · 0 comments

As a new year begins, many people take the opportunity to establish new habits and make resolutions toward a more fulfilling life. As much as a new year represents a time to make new plans and forge ahead, it’s also an opportune time to reflect upon the year behind us. Resolutions that are made with awareness of our existing situation are most likely to succeed because they take into consideration our behavior and circumstances. As a new year begins, let’s examine and evaluate our financial situation based upon the reality of the past and present as well as our goals for the future.

Discover your financial trends to inform your resolutions

Rather than simply proclaiming that you want to improve your financial state, it’s best to take a long hard look at it so you can identify what needs attention. If you use software (like Quicken) or an online application (like Mint) to track your finances, examining your spending, saving and other transactions should be a simple matter of pulling up some reports. They also make planning and forecasting a breeze. If you don’t yet take advantage of the convenience of tracking your finances electronically, the beginning of a new year is the perfect time to jump in. The exercise of setting up your accounts in these programs will serve as an opportunity to examine your financial state in detail.

Assess your previous year’s finances:

  • In what areas have you made progress toward your financial goals?
  • What positive steps did you take toward making sound financial decisions?
  • In general, where did your money go?
  • What mistakes were made?
  • What could/should you have done differently?
  • Did unexpected expenses throw your budget for a loop?

Examine your present finances

  • Determine your actual income and outflow. It’s as simple as adding up your monthly expenses (or your best guess thereof) and subtracting them from what’s coming in. Performing that calculation enables you to determine how much money is unaccounted for. That’s the amount over which you can exercise your discretion – and the amount that’s the key to your future financial plan.
  • List your assets and debts to gain the “big picture.” This will enable you to see what you have and how much you owe. Examining your “black vs red” totals will help you determine where you need to focus debt repayment and investments.

Utilize your examination to plan changes

Once you’ve examined your past and present financial situation, use that information to inform your decisions as you move forward.

  • Prioritize. Armed with the above information, make a list of your five or ten most critical issues. They may include such long-term goals as paying down debt or saving for retirement, or shorter-term goals, like rainy day or Christmas savings accounts.
  • Allocate discretionary money. Once your fixed expenses are covered, divvy up a healthy percentage of your “extra” money among those priorities. Don’t allocate it all, however; remember to leave your budget some wiggle room for the unexpected.

This is but the first step to a new financial outlook for the new year. Before you can resolve to improve your financial state, you have to look it square in the eye. Such examination gives you a realistic foundation, based upon your current situation, your expenses and your spending habits, on which to develop your next steps.

This article is the first of four on the subject of embarking upon the new year with a sound financial plan. The next in this series will delve into actually determining and setting those goals for the new year.

Have you evaluated your finances lately?

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