How to Do a Personal Year-End Review

by Neal Frankle, CFP ®

Happy Holidays and Merry Christmas Pilgrim!  You’ve worked hard over the last 12 months and you deserve some R&R.  But don’t hit that eggnog just yet.  Lets review all you’ve done so far and celebrate it.  But while we’re at it, let’s create a list of those items that deserve your attention for the upcoming year.

 6. Compare Your Net Worth

To be frank, this isn’t a super important review item for me. That’s because I can only control my actions and not the outcomes. I do look at the changes in my net worth, but I don’t let anyone “get all up in my grill” based on the outcome.  Here’s why.

You could have spent too much money and your net worth could still expand if the market was good like it has been for the past several years. Conversely, you could have done everything right and you net worth could have declined anyway if the market was bad. You can’t berate yourself for those things which are beyond your control.  But you should run your financial plan and determine:

  • Are you on track to achieve your goals? If so, why? If not, why not?
  • Do you need to change anything about you spending, savings or investing?

I suggest that you put together a very simple spreadsheet with your assets and liabilities. This way it’s easy to update each year and compare results.

5. Compare Budgeted to Actual Savings

This is where the rubber meets the road, Pilgrim. First, make sure you have an easy way to track how much you are saving. (This includes retirement contributions, investments and even those extra payments towards your mortgage.)

All your year-end investment statements will spell out how much money you’ve added regardless of the market value of those accounts right now. Compare what you actually saved against your planned savings. When you look it over, are you on track? If so, can you bump up your savings for next year because of an improvement in your income situation? If you aren’t on track, what do you have to do differently? Is it time for you to launch that side business?

4. Compare Budgeted to Actual Spendingyear end review

This is closely related to the point above – but slightly different. You might be at a point in your life where additional savings isn’t all that possible or all that important. In that case, it’s still critical to examine what your spending patterns are. I am a huge fan of YNAB software program (You Need A Budget) because it’s an easy-to-use program that tracks exactly what you spend. You set up budgets and download your data to make sure you are on track. What’s nice is that this software tells you exactly where the problems are – if there are any. Whatever system you use, make sure you have a system in place to give you the information you need.

3. Estate Plan and Life Insurance

If you’ve updated your living trust or will and/or reevaluated your life insurance this year, there is no need to do it again now. But if you haven’t done this recently, now is the time to schedule a review. Do you need to change your trust? Do you have enough life insurance coverage?

I know that your plate is full and your head isn’t really in the financial arena at year end. That’s why I suggest you schedule time to work on this. Your estate plan and life insurance are critical. Get it done, but get it done right. Take your time. Schedule a time when you’ll have a good chunk of time to thoroughly review your life insurance and your estate planning documents.

2. Investment Strategy

Your investment strategy is something that shouldn’t change all that often, but sometimes a change is warranted. Consider how much risk you are taking. Is it appropriate? Should you be a bit more aggressive with your investments? Should you throttle back? It’s OK if you don’t have the answers. Schedule a time to meet with your advisor (if you have one) for the first part of January.

1. Procrastination

What have you been putting off? What one thing did you really want to accomplish this year that didn’t happen? Think ahead 12 months. Pretend you’re looking back on what you’ve accomplished. You finally did that one thing that had a huge impact on your life. You feel great because you had procrastinated for years and the achievement had alluded you for too long. What is that one thing? What can you do today to get the gears in motion to make that dream come true?

What is your year-end review like? What should be added to this list?



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{ 3 comments… read them below or add one }

Richard June 14, 2012 at 5:32 AM

….all good comments. For the past ten years or so, I have been living monetarily as if I were retired, and now that I am about to retire, the financial adjustment will be rather smooth, plus I have been able to fund a supplemental 457b, that I would not have been able to do had I not lived as frugally…..a win win….at least asI see it!


Neal Frankle June 14, 2012 at 7:55 AM

Richard. Brilliant! What motivated you to do this? Was it your idea? I don’t meet many people who are willing/able to do this but it is sheer genius!


Ronald Dodge December 14, 2011 at 11:55 PM

For a good chunk of the below, I use Excel. To attempt to do this stuff by hand and to have it done accurately in a timely fashion, so as to be able to spend time on other things like with family, not feasible to do as there’s too much stuff impacting in too many different ways. Of course, I have the two advantages over most other people being that I am very detail oriented and I am about as advanced as any person could be on the software side of computers even though I have very little formal training/education with the software side of computers. As such, I also have done my research, found many of the rules, made up some of my own rules based on how life and money works, and I have setup Excel to do the calculations for me.

1) Tax Loss Harvesting

Be careful with this case if you follow this method and buy back the stock 32 days days later, you may have had to pay more for it, or at a later time, you may have more of an income from the stock than you would have otherwise if you would have just left it alone and it would bump you into a higher marginal tax bracket, which would really have you pay in more money into income taxes.

As such, when I do my investments, I do take taxes into account, but I don’t let taxes dictate my moves. I will make the moves more so based on other reasons, not just on tax reasons. Yes, I’m a long term planner, not a short term planner as the suggestion given here in the article alone looks more like short-term based and may do more harm in the long-term.

Now if I’m hurting for cash, then I may have to go this route, but that would be one of my later resorts method.

2) Income Tax Projection

January, April and December are the 3 months when I work on the tax aspect of financial planning. December for any last minute tax code changes, along with how income taxes are impacted, January with making adjustments for the start of the new year for removing old rules no longer in play and putting in new rules that goes into play, and April with how to make things more efficient if needed compared to the year prior.

3) Withholding Tax

This is done in January every single year. Federal rules allow for claiming what the household want to claim so as to attempt to play the break even game. In my case though, my wife and I have to file the W-4 form by February 15th every single year to claim “EXEMPT” as we expect a “0” tax bill when you take our tax bill minus all of our refundable tax credits, which actually ends up giving us a tax refund without paying anything into the income tax other than FICA taxes.

As for state income taxes, we still end up paying that to state, so we don’t have to fill their equivalent form out every year. However, I don’t like their rules as to how to claim exemptions cause even though one would get $1,300 personal exemption, the state withholding tax tables only give credit for $650 of it, thus one is paying too much into state income taxes and end up with about a $400 to $450 tax refund from the state.

Overall, I still end up paying more into payroll taxes than I get in the form of refund, though this year doesn’t appear to be quite the case given the unemployment issue. This would be the first year ever to qualify for the Earned Income Tax Credit.

4) Compare Your Networth

I maintain my records within Excel so as this number is calculated automatically. While this number should not be used to say how you personally are doing cause there are some long-term numbers in it that impacts this number, which are things that is outside of your control. However, you should be able to separate out the stuff that’s outside of your control from the stuff that are within your control and be able to measure how you are doing in that regard.

In my example, this number was primarily going up through July, but even then, it was going up rather slowly cause of other things that were happening that was outside of my control. After July, my income dropped dramatically, which networth number also been dropping ever since too. You see, it’s not just short-term assets like cash and bank accounts, and it’s not just investments that impacts the asset values, but also the book values of long-term assets. As time progresses, those book values drop on those long-term assets, which drops the networth numbers. I purposefully have that setup for one specific reason.

As a general rule, if your networth value is dropping, then you aren’t doing enough to maintain it at the minimal, so you must look for ways to stop the bleeding. However, there are exceptions to that rule:

If market values has dropped, that’s out of one’s control, so can’t really help it as long as one is still managing their investments using good investment practices.

If you get laid off, your income is very likely to go down, which then has your networth either not go up by as much, or worse yet, go down even more.

If you are having to complete out your higher education, your networth will most likely take a big hit either by investment reduction and/or by debt being increased.

These are just 3 examples that would be exceptions to the general rule, but they should also be only temporary set backs in nature.

5) Compare Budgeted Savings to Actual Savings

This is the part I use quite heavily from an evaluation point of view, which I compare throughout the year, not just at year end. That’s cause if you only do this at year end, you are not likely to be focused on that saving goal. Having learned what I learned from my self study on retirement back in 2001, I manage this at the minimally, monthly.

6) Compare Budgeted Spending to Actual Spending

This is not a big deal to me as far as comparing on an absolute basis. That’s cause there are things that happens throughout the year. While you do have your relatively fixed survival and financial expenses, you have other expenses that’s not so fixed such as employment expenses. As such, I don’t do absolute comparison. I determine on an absolute basis how much I spent, but to say that I went over or under budgeted, I don’t put much value into that in itself. That’s cause if I am putting in long hours at work, then I am much more likely to spend some of that extra earned income on prepared foods as opposed to being spend on food that is to be prepared at home. Also, you have more taxes taken out with the additional income.

For these kinds of reasons, I use my cash flow management worksheet instead, which I use that at the minimal on a weekly basis to manage this such spending with the big major planning taking place in August/September for the following 2 calendar years, so as to be able to foresee any potential financial hazards as the current year expires and far enough out into the future. Of course, the other reason to do it in August/September, many time, open enrollment for employment benefits are in October, which by that time, one should have done much of their research to determine where they stand and were economics stand that impacts them. Also, once it’s essentially Halloween time, then one is too much thinking about the holidays, which also is not a good time to be doing long-term financial planning.

7) Estate Plan and Life Insurance

Not really that big of an impact in my life at this point of time other than for having to plan how we put money away and what the tax impact would be in retirement years.

As for life insurance, while it’s a good thing to have, at what expense, and at what sacrifice? Until one can at the minimal meet it’s saving goals as far as putting the minimal amount of money away for the year, have a reasonable emergency fund setup, along with having debt well manageable with proper income coming in, then I don’t see it worth while to get life insurance. I most certainly won’t get whole life insurance. If I get any life insurance, it would only be Term, and it would only to cover the gap until I have sufficient investments to cover the necessary cash flow demands should something happen.

8) Investment Strategy

I certainly look at this factor and most people have told me to just put things in cash for things like an emergency fund. While I understand the risks of investing in stocks, I still invest in stocks. I have been doing far better investing in stocks than I would have done by putting into cash type accounts.

As for measuring my own performance, I compare my results against respective market benchmarks. As for this, this is one measurement I definitely do at the minimal quarterly, which the biggest focus being at year end time. While my performance is not always higher, as a general rule excluding 2010’s performance, I have performance trend of about 1% higher than the respective market benchmarks. As for the 2010 year, my performance was 10% higher than market benchmarks.

9) Procrastination

For the 2012 year, my main goal is to have my Accounting 4 year degree. This has been put off far too long and I’m back on this goal. The only thing that would take me off this goal is if I find full time employment that would be able to cover our household expenses while also allowing for me to meet my saving goals.


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