That time of the year is back again! Another year has come and gone and that means time for reflection, setting new goals and getting motivated to try again next year. The new year is a very popular time to set resolutions and plan out all of the great changes that can come by sticking to those resolutions. The same goes for your money resolutions! In order to set realistic financial goals for the new year, it’s best to understand exactly what you’ve done with your finances this year. I’m walking you through how to complete your year end money review. Use this information to improve your money situation next year!
What is a Year End Money Review and Why do You Need It?
What is a year-end money review?
Before I get into the details of how to complete your year end money review, let’s talk about what it is and why you need it. If you’ve been in the City Girl Savings community for a while then you’re probably familiar with my Month End Money Pulse Checks. A year end money review is just like a month end money pulse check, but for the whole year!
If you have no clue what I’m talking about when I say month end money pulse check, then let me enlighten you! Every month I complete a review of my money. I look at the budget I set for the month, my spending for the month, and any progress I made towards my goals. The same will apply for your year end money review, except you’ll be looking at your numbers for the entire year.
Don’t let this task overwhelm you! Ideally, you’ve already been budgeting and tracking your spending, so you aren’t starting from scratch. If you haven’t been keeping an eye on your spending, this will be a very eye-opening exercise, so get ready!
Why should you complete a year end money review?
You’re probably wondering why you should complete a year end money review, especially after learning what it is. The main reason why you should complete this review is because knowledge is power. If you spent the year spending frivolously, not budgeting, and not keeping an eye on where your money went, it’s time to face the music!
When you’re in the dark about where your money is going, you can’t make any changes. You don’t know what’s not working, so you don’t fix anything. When you take the time to see where your money actually went, you can make changes to help you reach your goals. This is not an exercise to make you feel bad about your spending. This is an exercise to help give you clarity on how to move forward with your money.
Where to Begin
Now that I’ve convinced you to complete your year end money review (right? ), it’s time to get down to business. I’m going to walk you through what you need to get started and how to complete your year end money review. But first. Let me answer a question you’re probably thinking right about now:
How long will this take?
If you have been budgeting and tracking your spending all year, this exercise shouldn’t take more than an hour for you to complete. This is because you have all of your information handy already. The reviewing part isn’t as strenuous as the gathering data part!
If you have not been budgeting or tracking your spending for the year, this exercise can take hours for you to complete, because you’ll be gathering all of your data. If you use multiple bank accounts or credit cards for spending, it may take even longer. If this is your scenario, I’d recommend doing this on a weekend when you don’t have anything planned. This is not a split-up exercise. It’s a one and done exercise!
What you’ll need: Income
To complete your year end money review, you’ll need to know how much money you brought home in the year. This was all money that made it to your bank account, so no pre-tax amounts for this exercise. Make sure you account for any assistance, side hustle, second job, inconsistent or one-off income as well.
If you only worked your day job, all you’ll need to do is add up your net pay from your paystubs for the year. You can also wait until you receive your W2 as well.
What you’ll need: Spending
You’ll also need to know how much money you’ve spent in the year. This is where the bulk of the time could be spent, if you haven’t been tracking your spending. Gather statements for all of your spending accounts for the year. If you used credit cards, you’ll want those statements as well.
What you’ll need: Debt
You’ll need to know much money went to debt during the year. You should have gathered your credit card statements from the previous category, but you’ll also need any other loan or debt statements for the year.
What you’ll need: Savings
Lastly, you’ll need your savings account statements for the year. You will want to see how much money was saved during the year. Your savings account statements will also show what money may have been taken out of savings throughout the year.
Completing Your Review
Now that you have all of the data handy, it’s time to dive into your money habits for the year! You’ll want to answer the following questions to complete your year end money review:
How much did you make?
This should be a relatively easy question to answer. Refer to your paystubs and bank account statements to tally up all of the money you brought home for the year. If you received money from multiple sources, categorize the money received by source. Total up each source of income and then get an overall total for the year. This is how much you made for the year.
How much did you spend?
This will be the hardest question to answer, because spending is a constant (for most of us). To avoid overwhelm, just get a total number of what was spent in the year. Don’t worry about categorizing your spending just yet. Get the total spent from your bank accounts and the total spent on credit cards.
Once you have your total amount spent for the year, let’s do a pulse check. Did you spend more than you make this year? If the answer is “yes”, don’t freak out! We need to see where debt and savings fall in that overall spend number.
How much went to debt?
To see how much went to debt, you can refer to your credit card and loan account activity or statements. Some of your statements or account activity pages online may show how much you’ve paid on the debt over a specific period of time. You’ll want to pinpoint exactly how much money went to all of your debts. What is that number? This is how much you put towards debt for the year.
How much went to savings?
Lastly, you’ll want to know how much money was saved throughout the year. This will be easy to pinpoint. First, start by identifying how much money was transferred/put into savings for the year. Then, identify the total amount transferred out of savings. Subtract the total money saved by the total money transferred out of savings. This is how much you saved for the year.
Tying it all together
Once you have all your numbers, it’s time to see where you stand. Your income is your top line number. You’ll want to make sure that the total money spent plus the total money paid on debts is not greater than your income. If it is, then you spent more than you made during the year. If it’s not, then you had a profit for the year, and that is likely your savings balance.
If you noticed you transferred a good amount into savings for the year, but transferred a lot of money out of savings for the year, it could mean you were trying to save too much for your situation. It could also mean that you were overspending and you had to use your savings to fund your overspending.
You can also take your review a step further by identifying categories for all of your spending. Start simple by categorizing needs and wants. Put your spending into those categories. Did you spend more on needs or wants?
Take the wants category a step further and break it down into sub-categories. How much did you spend on dining out, shopping, travel, or any other common discretionary items? This will show you where your opportunities to improve are. Tell me these results aren’t eye-opening!
What Happens Next?
Didn’t like your results? Take action
So, what do you do with this information? Make changes! If you were unpleasantly surprised or disappointed in your year end money review results, start thinking about what you can do to improve for next year. Also, think about how you can start budgeting and tracking your spending so this exercise is easier to complete next year.
Happy with your results? How do you improve?
If you were pleasantly surprised and happy with your results, great! That’s amazing! Now, how can you do even better next year? Were there any areas where you could have spent less? Will you be making more money next year, and therefore be able to save more? Think about how you can improve your situation next year, even if it’s just a little improvement!
Related: The Best Way to Set Your Money Goals for the New Year
This exercise was designed to help you have a good understanding of how you made money, spent money and saved money during the year. Like I said before, knowledge is power and when you know better, you can do better! Have you or will you complete your year end money review? Do you have any questions on the process to complete your year end money review? Drop a comment or your questions below and I’ll be happy to respond!