5 financial questions to ask as the year ends

financial questions to ask as the year endsAs another year comes to a close and a new year is about ready to start, we often start to reflect a bit on where we have been and where we are going in the new year. This natural tendency to reflect is why we often make New Year’s resolutions as we look to improve on areas of our life where we feel we have found short comings.

As you look back to evaluate and forward to the future here are 5 financial questions to ask as the year ends.

Do I need to improve my tax situation?

Now is the time to consider if there are any actions you need to take to help reduce the taxes you may owe come April 15.

Is there a charitable contribution that you have been meaning to make? Perhaps an investment that is doing poorly that you could cash in and use the loss to reduce your taxes?

If you are over the age 70 1/2 and you have money in a traditional IRA or 401(K) have you taken enough out to meet your required minimum distributions for the year?

If for some reason your income was down this year, you might consider converting some of your IRA to a Roth IRA this year while you can benefit from being in a lower tax bracket.

Give your accountant or financial advisor a call if you think any of these might be beneficial to you.

Do I need to readjust my investments?

This is also a good time to take a look at your investments. You should always be invested across a variety of types of investments in order to reduce your risk. Never have all your eggs in one basket. Mutual funds are one good way to accomplish that since one fund might allow you to own a little slice of hundreds of companies.

The problem is not all funds grow at the same rate. Perhaps you invest in four different mutual funds and decide to put 25% of your money in each one. But then one fund did really well this year and perhaps a couple of others were just so so. You might find that you now own 35% of the great fund, still 25% of the one fund, and only 20% of your money is now in the funds that only did so so. Your money isn’t distributed like you intended, so you need to rebalance your portfolio. This is just a fancy way of saying you want to redistribute your money to get back to having it split evenly across all your funds.

This isn’t something you need to worry about from day-to-day or even month to month. But it is something you should consider at least once or twice a year. If you haven’t done this for a while now is a great time to take a look.

You might also consider if you need to change any of your investments. Maybe as you are getting older and closer to retirement, you need to adjust your investments to reduce your risk a bit. Or perhaps you have an investment that just has not been performing well for a long period of time and it may be time to change to a different fund.

All of these questions are things a good financial adviser can help you with.

Am I in a better financial situation than I was this time last year?

How are you doing this year compared to this time last year? Has your debt increased or decreased? How about your savings? Is your income improving or did it go down in 2014?

One great way to keep track of this is by doing a net worth statement at least once a year. While it might sound complicated, a net worth statement is really very simple. You basically just list everything you own or have saved, then subtract all your debts and the number you have left is your net worth. For a more detailed description of how to create a net worth statement check out A great way to track your progress on your road to financial health

As you complete this activity from year to year it becomes easy to track your progress. Is your net worth higher today than it was one year ago? Congratulations. You are in a better shape financially. If your net worth is lower then you are not as well off as you were a year ago. Compare this year’s statement to last year. What is different? Did you make progress reducing debt? Do you have some investments that went up or down? Have you made some significant purchases?By comparing last year to this year, you can get an idea of what areas you may need to improve.

The Net Worth statement is a great, relatively quick way of getting a one page picture of how you are doing.

Is my career on track for where I want to be in life?

This is also a good time to consider how you are doing career-wise. Sometimes people struggle financially simply because they don’t make enough money. They live frugally, but there simply isn’t enough coming in each month to pay the bills.

There is no shame in this. Most of us have struggled at some point in our lives. However, if this is where you find yourself now, start planning for how you might be making more income this time next year, and even more 5 or 10 years from now.

Maybe you need to get a degree or a certification in your field. Perhaps you need to consider changing careers. Maybe you need to find ways to make yourself more valuable to your current employer so you can be trusted with greater responsibilities. Whatever the case may be, spend some time thinking about how you could improve your income.

Or perhaps you have a good income, but you really hate your job. Do you feel a little nauseous when you think about going into work? Do you hate Mondays and long for the weekend? Maybe you don’t mind what you do but you are constantly stressed out.  If so, start planning for how you might be able to move toward something that provides a good income and allows you to do work that you enjoy.

Lastly, even if you currently are making enough income to support yourself and your family and you are doing work that you enjoy, you should still spend some time considering how you can become even better at what you do. What new skills could you be trying to learn? What would you need to do to get promoted to a new level? Do you see a need that no one is filling that you could volunteer to take on? Schedule some time with your boss to ask sincerely and humbly what areas you could improve to make yourself a more valuable employee.

Our world is constantly changing. Those who don’t adapt will quickly fall behind. Spending some time to consider how you can improve your skills is an investment in your most important asset. You!

What is the most important financial goal I need to accomplish in 2015?

Lastly, consider what is the most important thing you could work to improve in 2015?

I think we sometimes fail to achieve our goals because we try to do too many things at once. I would rather accomplish one important goal in the coming year than make only minimal progress on five different things.

  • Do you need to eliminate debt?
  • Build up a real emergency fund of 3 to 6 months or more of your expenses?
  • Get started saving for retirement?
  • Start living on a written monthly budget to gain a sense of control of where your money is going?
  • Find a new job?
  • Save up for a down payment to buy a house?
  • Sign up for some classes to move toward a new career?

Whatever it is pick one financial goal and put together a plan to accomplish it in 2015!

What goal will you pursue this year?

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