How to Review Your Finances

by | Dec 8, 2022 | Blog

As the year wraps up, it’s a best practice to review your finances. One of the main reasons we see folks getting into financial trouble is because they refuse to take stock of where they stand.

In a year like 2022, where the stock market has slumped and inflation has increased everyone’s monthly expenses, it might feel better in the moment to not look at your numbers. But how are you going to know if something is off?

Also, living through a down market and rising expenses is valuable in the sense that now you can see how those external factors impact your day-to-day finances. The next time it happens will be different, because circumstances are always changing, but it will be helpful to know roughly what to expect.

But how do you even review your finances? What you should be looking for? How do you know if you are doing a good job, or not?

In the rest of this blog post we’re going to outline what to look for when you review your finances.

How to Review Your Finances

Average Monthly Spending

Reviewing your finances at the end of the year is helpful because it gives you a large enough sample size for an accurate representation.

Take a look back at your bank statements, and at the very least compare two numbers, what came in and what went out. It would be helpful to get more granular and see specifically where your money was going each month. But at a high level comparing your income to your expenses will let you know how much excess you have. From there you can decide what to do with it.

Review Your Last Paycheck for the Year

You can learn a lot by actually looking at your paycheck. I know most people have it set up so the net number gets direct deposited into their account each pay period. But there is a lot of other information that can be found on your actual paystub.

Your gross pay for the year will be on there. This is your pay before taxes and things like pre-tax retirement account contributions are taken out. These numbers are important come tax time because they are what you (or your tax preparer) will use to determine your refund or tax bill. Gross pay is also important if you are planning on applying for a loan, this is the number to report.

You can also see what you are paying in federal and state tax. As well as what you are paying into Social Security and Medicare.

If you are a W-2 employee, you will likely get your W-2 shortly after the end of the year, but looking at your last paycheck is a good way to get a head start. The sooner you can make adjustments to things like tax withholdings, the better. Because then you have more paychecks to stretch changes out over in 2023.

Reviewing your Investments

Your investment accounts are likely to be down from where they stood at the end of 2021. (Unless we see a large stock market rally). While we never like experiencing down years in the market, it is par for the course.

Also try looking back at multiple different time periods, not just the last year. Look at the last 3, 5, 10 years, or even compare it to when you started investing. If you are contributing to your accounts still, how much did you contribute? How does that compare to years past?

If you are taking distributions from your account, how much did you take out? Was that enough? Was it too much? Is that distribution rate sustainable?

You can also measure your investments against how the market did overall. Just make sure it is an apples to apples comparison. If you are a diversified investor, meaning you own different areas of the market, and not just the S&P 500 or Dow Jones, your account will perform differently than those benchmarks.

Review Your Goals

The overall point of doing this exercise is to determine if you achieved your financial goals for 2022. If you didn’t have any goals heading into 2022, well, we recommend fixing that for 2023. Your finances should have a direction attached to them.

What big purchases are on the horizon? Are you maximizing those excess dollars each month? Are you spending more than you should be? How many big unexpected expenses did you have? Could you have planned for them better?

Having as much money as possible is not a good goal. Be intentional. Be specific. Focus on things that are actually within your control, like saving money, paying down debt and contributing to investment accounts.

One of the silver linings of this year is that folks still contributing to their investment accounts have been buying more shares of the market at lower costs. The benefits of doing this won’t be immediately seen. But these cheaper shares will help over the long-term.

This review of your finances shouldn’t take more than a couple hours. We know that it probably feels like homework, but trust us, doing just this little bit of work at the end of the year can make all the difference as we head into 2023.

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