How to Give Your Finances a Year-End Review

By Matt Bell on 3 January 2017 0 comments

As one year ends and another begins, it's a natural time for reflection — financial and otherwise. Here are some suggestions for evaluating your financial progress in 2016, with the hopes of planning an even better 2017.

Net Worth

This is your financial big picture and it makes for a great starting point. In essence, the net worth calculation asks, "How much are you worth?" And the more important question for our purposes: Has your net worth increased or decreased over the past year?

Assets minus liabilities (debts) equals your net worth. Calculate the value of all your assets (home, vehicles, retirement accounts, savings, investments, belongings, etc.) minus any liabilities or debt (mortgage balance owed, car note balance, student loans, credit card debt, medical bills, etc.). The difference between your assets and liabilities is your net worth.

If you did this exercise last year, how has your net worth changed over the last 12 months? And what contributed to the changes?

Cash Flow

When it comes to using a budget, there are various tools — from a paper and pencil budget to the envelope system, and from software to online tools. When trying to motivate people to use a budget for the first time, I often say that the best budget tool is the one you'll actually use. However, for the purpose of a year-end analysis, there's nothing like an electronic tool, whether that means budget software or an online service such as Mint.

For your cash flow analysis, start with the big picture — total income versus total expenses. Did you live within your means this year?

Then do a category-by-category analysis. If you overspent in a certain category, was your budgeted amount unrealistic, or do you simply need to do a better job of managing your spending in that category?

Use what you learn from this analysis in crafting your 2017 budget.

Experiential Net Worth

Traditional net worth statements have one big shortcoming, though — failing to account for investments you've made in positive experiences. Experiential net worth includes things like charitable donations, investments in your or your child's education, or even a memorable family vacation.

Sure, these are expenses. However, research shows that spending money on positive experiences tends to make us happier than material things, so it's appropriate to recognize the experiences we invest in each year.

To analyze your experiential net worth, focus on some of the ways you've spent money in the past year that led to some of your most positive experiences. This doesn't need to be a highly detailed account. If you gave to charity, for example, you might just list the organization(s) that you donated to as your experience, and maybe include a few details about the organization or how much money you contributed.

Keeping tabs on your experiential investments can help you be strategic in planning future spending.

Emotional Net Worth

Emotional net worth is an assessment of how you feel about your current financial situation. While highly subjective, it can still help you analyze your overall financial wellbeing. Are you stressed about debt — and if so, how much? Do you feel you're making positive progress toward financial goals?

Give your emotional net worth an overall rating. Next, jot down some ideas that could help you improve in this area, such as debt reduction, better communication about money with your spouse, or building an emergency fund.

Now, take a good look at your year-end financial review. Are you content with what you see? Imagine it's this time next year. What changes will you need to make in 2017 to end up where you want to be?

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