It’s important to spend a bit of time before the New Year to check in with your financial wellness and goals. Just as you go to the doctor each year to review your health, you should also do an annual financial checkup to make sure you’re on the right track.
When you do a finance health check, you review your strategy from the past year. You might recognize that you need to save more next year or that you’ve come farther than you thought with your debt payoff strategy.
If you’re not keeping a close eye on your budget each month, taking the time to do a finance health check is an important way to know where you’re going and where you’ve been. It’s time to rewind 2020 and prepare for 2021 with confidence.
1. Review Your Goals
With the start of the New Year, you probably took a bit of time to think through or write down your goals. You might have wanted to save for a big holiday or maybe you were just trying to pay down credit card debt.
As we all know, sometimes life gets in the way. With the COVID-19 pandemic in 2020, it’s very normal to find yourself off track from your financial goals that you set before the crisis.
No matter what your 2020 looked like, start your finance health check by reviewing those goals you set. Have you fallen short? Did you meet your goals? No matter the answer, consider how these goals will transition to 2021. You might set new goals or revise your existing ones.
2. Adjust Your Budget
In 2020 especially, a lot of people experienced some big changes. You might have lost your job suddenly, gone back to school, or changed your living situation. These life changes are normal, but they also mean it’s time to adjust your budget.
If any changes in your personal situation happened during 2020, you’ll need to adapt your budget, spending, and savings to match. This is also true if you expect any big changes in 2021. If you’re planning on any of the following, include that in your yearly plan:
- Wedding
- Moving
- New baby
- Holiday trip
- Job change
- Divorce
- Retirement
- Buying a house
All of these milestones above mean you’ll likely experience a change in income, expenses, and so on. You’ll want to plan your 2021 budget with these in mind.
3. Prepare for Anything
As we all know from the 2020 global pandemic, you can’t always predict the future. Though things might seem stable right now, they can change on a moment’s notice.
Reviewing your financial plan, safety net, and emergency fund is a must. If your living situation changed, you might need to boost your emergency fund. In addition, you might want to check in with your retirement savings to make sure you’re on track. With the events of 2020 in mind, how can you keep yourself prepared in the future?
4. Evaluate Your Debts
Every year, it’s important for your financial health check that you know where you stand when it comes to your debts. How well are you managing your debt? Compare your debt to income ratio to see whether you’re on track with your financial goals.
When looking at your debt, consider all of the moving parts: credit cards, mortgage, auto loan, personal loan, etc. Are you making the minimum payments on each, and have you begun to use a debt payoff method?
Taking a few moments to look into your debts is the best way to check in with your credit score, interest rates, and so on. You might need to refinance or consolidate debts in 2021. When in doubt, work with a debt payoff expert to create actionable steps.
5. Create an Action Plan
Last but not least, make real-life, actionable steps. It’s not enough to simply check in with your 2020 progress. From there, you should create a plan to take your finances forward in 2021.
When you’re done reviewing all of the above, you should be left with your:
- Goals
- Budget
- Savings plan
- Debt payoff plan
- Retirement plan
All of the above include extra room just in case of an emergency, as well as considerations about any lifestyle changes or milestones. While it might seem like a lot to keep track of, there are so many budget trackers and applications that do the heavy lifting for you.
Be Ready for Anything in 2021
If there’s anything 2020 taught us, it’s that you can never get too comfortable. While 2021 will likely mean an end to the global pandemic crisis, it’s still an important reminder of planning for uncertainty and the future. As long as you’re proactive and mindful of your financial goals, you’re ready for anything.
Doing a finance health check can be intimidating. If you’re not sure how to begin, you don’t have to face this process alone. The money professionals at Debt Busters have experience working with Aussies of all backgrounds for over a decade. Schedule a consultation today to start your yearly finance review.