Taking Stock Of Your 2015 Finances
The end of the year is a great time to look back, take stock and evaluate your finances before you push ahead into financial planning for 2016. Looking at a whole year’s finances can be overwhelming, but it is an absolutely essential step when building a solid personal financial plan.
The first key to assessing your financial situation at the end of the year is having a budget in place. Unless you know where you are spending your money, and unless you have a pre-set spending goal in place, it’s nearly impossible to judge where you stand. If a budget has never been created, the end of the year is a great time to put one together, in preparation for the next year.
It is valuable practice to take an assessment of where outstanding debts stand at the end of the year rather than the beginning of the year. If you are carrying credit card debt, have you made progress in reducing it? Have you been successful in reducing student loan debt, outstanding mortgages or personal loans? Looking at what you paid in interest over the course of the year can be a real eye opener. In particular, it’s the credit card interest that can really cost you. Depending on your bank and type of credit card, you could be paying as high as an annual rate of 28 per cent to 30 per cent on your outstanding balance.
Savings goals are an important component of the year-end review. Were you able to stick to your savings plan and ensure that an adequate emergency fund was in place? Have you contributed sufficiently to your company pension or to your personal private pension? In particular, how have your investments fared compared to the broader market and are your returns as expected, better or worse? As a benchmark, the global equity markets are down about 1% for the year as of the end of November. If you are substantially below this, you may need to reassess how and with whom you are investing with. Using the year-end review to make adjustments to your investment strategy is a good practice, and can help to ensure you properly rebalance and invest in-line with your goals and risk tolerance.
In terms of taxes, the end of the year (especially for business owners) is a great time to do some early tax planning with your accountant. Ensure that you are paying sufficient taxes so there are no surprises at tax time. This can be factored into your investment rebalancing actions. If money is held in taxable accounts, there can be a big difference between short-term and long-term capital gains, depending on your nationality and your tax residence.
So remember – the end of the year is a great time to take stock of where you stand before you begin the process of planning your financial future.
Bill Longstreet is a partner with Shanghaibased Caterer Goodman Partners, a primarily fee based financial advisory firm. For more tips on how to handle your savings, check out their blog, www.chinaexpatmoney.com