The Year-End Financial Physical: Closing the Year Strong
As the year winds down, it is easy to get swept up in the holiday rush of gift-giving, travel, and celebrations. However, the end of the year is arguably the most critical time to pause and take the pulse of your financial life.
Think of this as your annual physical, but for your wallet. A systematic review now can uncover gaps in your coverage, identify opportunities for savings, and set the stage for a prosperous New Year.
Here is your checklist for a comprehensive year-end review.
1. Audit Your Emergency Fund
The economy changes, and so does your life. A three-to-six month emergency fund calculated five years ago may no longer cover three-to-six months of current expenses.
The Inflation Factor: With the rising cost of living, your monthly budget is likely higher than it was last year.
The Liquidity Check: Ensure these funds are in a high-yield savings account where they are earning interest but remain accessible without penalty. There are some accounts that limit the amount of money movement within the account.
The Payback: If you dipped into the fund this year for a home repair or medical bill, make a plan to replenish it immediately.
2. Review Your Shield
Asset accumulation is great, but asset protection is vital. If you haven't reviewed your policies in over 24 months, you may be underinsured.
Life Insurance: Have you married, divorced, or had a child this year? Does your current death benefit still cover your family's future income needs and mortgage obligations?
Disability Insurance: Your ability to earn an income is arguably your single greatest asset. If you rely solely on group coverage through work, remember that those benefits are often taxable and might not cover bonuses or commissions. Now is the time to review your income replacement ratio to ensure you could maintain your lifestyle if you were unable to work.
Health Insurance: If you are still in the open enrollment window, compare plans. If you utilize a High Deductible Health Plan (HDHP), check if you have maximized your Health Savings Account (HSA) contributions.
Property & Casualty: Home values and construction costs have soared in many areas. Ensure your dwelling coverage matches the current replacement cost of your home, not just what you paid for it.
Umbrella Policy: This is often the most overlooked piece of the puzzle. An umbrella policy provides liability coverage above and beyond your home and auto limits. In a litigious society, this is affordable protection for your future earnings and assets.
3. Strategize Debt Repayment
Interest rates have fluctuated, and carrying debt has become more expensive.
Inventory the Rates: List every debt you hold—mortgage, car loans, credit cards. Note the interest rate for each.
The Strategy: Decide on your attack plan for the New Year.
The Avalanche Method: Pay off the debt with the highest interest rate first to save money mathematically.
The Snowball Method: Pay off the smallest balance first to build psychological momentum.
Credit Card Reset: If holiday spending spiked your balances, create a specific timeline to pay them off within the first 60 days of the year to avoid lingering interest charges.
4. The Why Behind the Numbers
This review isn't just about math but also peace of mind. Knowing that your safety net is funded, your risks are insured, and your debt is managed allows you to enjoy the holidays with true freedom.
Need some assistance? Set up a free consultation to go over your checklist!
