Performing a Yearly Financial Overhaul

The only way to really know which direction your finances are headed is to take a close look at them regularly and make any necessary adjustments. Take these steps to overhaul your finances at least once per year.

We’re told to replace our smoke detector battery yearly, but what about our budget and financial plan? Are they charged and ready to go for next year? Every November (once many of us find out whether a salary increase is coming or not), we revamp our spending plan. Each time, it gets easier as there is more “tweaking” involved and less “chucking to start from scratch.” 

We evaluate using these questions:

• Was each category adequately funded?
• When we came to the clothing account, was it empty far too often and we had to “borrow” from somewhere else to get a winter coat or a pair of shoes?
• Are any costs increasing next year? Taxes? Rent? Utilities? Just where will the money come from?
• Can we cut back within an existing category, like food? Or clothing? Can we lower the thermostat? Or use less electricity?
• Are there options for our health needs?
• Can we reduce our car insurance premium?

This is where strategies come in and where most personal finance resources put their efforts.

May we eliminate or must we add a category? Money is either coming or going. Divert an eliminated category’s funding to where it’s needed or it just evaporates. A new line item has to be funded from existing resources. Tempting as it may be, we don’t have the option of printing our own money.

Have any life-changing events impacted our budget? Our son starting college has. It’s resulted in lower food costs and higher school expenses. When our youngest broke his arm, that made a huge dent in our medical account. Hopefully, a raise is coming this year. But we’re also responsible for a greater share of health costs. Recovery from or planning for a financial blow takes thinking through the options.

Are we on target with our life goals? Can we do anything to realize them better? Let’s say retirement is the biggie. Can we skimp in any area to boost savings? Take $5 off food costs every week, and we have $260 in a year. Take $20 off, and we have over $1,000. No small potatoes.

What investment strategies should we consider? Some people have options through their jobs. Even so, the research burden is on the individual. This may be the time to start some online research.

Is there a three to six-month cushion in place? Are there higher rates out there for our CDs as they come due? Should we consider laddering? Would a money market be a better choice?

Is there any wiggle room? Being financially blind-sided is no fun. Been there and bought the tee shirt. An emergency fund gives you the freedom to roll with the punches a bit more, and even help someone else if they’re in need. We try to have one in addition to the cushion.

So, let’s crack open our budgets, sit down with a cup of coffee, and tackle the job.

• Why You Need a Spending Plan Instead of a Budget
• 8 Reasons You Don’t Have an Emergency Fund
• Give Your Finances a Pre-Retirement Check-Up
• How To Get Started Saving for Retirement in Your 20s 30s and 40s
• Playing Catch-Up With Your Retirement Savings

Reviewed December 2023