Financial Housekeeping — A checklist for the new year

Photo by Jan Kopřiva on Unsplash

All the small but important tasks that need your attention

The new year brings us a host of new resolutions — earn more money, get fitter, travel the world. Our resolutions often look ahead to a hopefully better future, and that’s how it should be. But a bright future can only build on a solid past, which too often gets neglected.

No matter where we are in our financial journey, whether we are still learning the basics or well on our way to financial independence, there are still tasks you must do, every year. Here’s a handy checklist, to ensure you don’t miss out on any:

1. Check your credit score

Your credit score is an excellent barometer of your financial health. It is also crucial for you to ensure that things are in order, at regular intervals, rather than panicking when you actually need to borrow money. An annual checkup will ensure that there are no errors pulling down your score. It will also motivate you when you see your score increasing due to your responsible behavior throughout the year.

2. Update your nominees/will

A single year can bear witness to many changes in your life. We get married, we birth children, we lose loved ones. In these moments of joy and sorrow, our financial health is the least of our concerns. This is why, once a year, when our minds are clear of extreme emotion, it is important to rethink all our nominees and heirs. Are the people in your financial documentation still the ones you would want to be benefitted, in case something were to happen to you? If yes, there’s nothing to do, and you have one more year of peace knowing that your loved ones will be taken care of. If not, this is the perfect time to show your care and update the documents.

3. Rethink your financial goals

Life can turn upside down within the span of a year — just ask 2020! You may find yourself wanting a completely different life than the one you had planned for last year. Some of us have realized that we like staying home and being with our families and that downgrading our lifestyle would be worth it if it means that we can retire sooner. Some others have accepted that, no matter how much we crib about our jobs, our careers provide immense satisfaction to us — and maybe getting some more help for household chores and childcare will be worth it if it means that our careers can take off.

No matter what the direction of change has been for you, a regular recalibration is necessary to ensure that your financial goals are in tandem with how you want your life to shape up.

4. Plan your credit card rewards

Most of us first plan our travels and then determine how our credit card rewards can help us reduce costs. However, the pros do it backward. Many credit cards have affiliations with certain airlines or hotel companies, so that is a permutation that you need to factor in to maximize your bang for the buck. Jacob Wade has a really fun story of how they first planned where they wanted to go, and then worked backward to go to Hawaii free with his family — of seven!

Take a look at which credit cards you have and what type of rewards they offer. A couple of hours of planning a trip/other luxuries around those rewards can be time well spent.

5. Balance your portfolio

This is an important one. When we plan our finances, we have certain percentages of assets you would like to hold. For example, you might want 30% debt and 70% equity. Because all asset classes are cyclical, you would notice that, though you may have contributed in that ratio, your actual holdings would be different. If equity has done very well in a particular year (looking at you, 2020), it might form 85% of your portfolio, leaving only 15% debt. Rebalancing your portfolio annually, meaning bringing your assets back to the percentage you initially wanted to hold (70% equity and 30% debt in this case), helps you book profits when certain assets are doing well, while at the same time, buying the assets which are not doing too well.

Rebalancing is not only a great way to keep your portfolio within what your risk appetite allows but also an easy way to bolster the returns on your portfolio over the long term — a lesser-known but very important advantage, in my eyes. Here is a study showing how an annually rebalanced portfolio provides higher returns than one that isn’t.

6. Check your debt

If you have debt, a huge source of savings for you would be to simply check regularly if you really need to pay that much. Have the interest rates dropped? Can you refinance? Maybe you could consolidate your credit card debt? Debt repayment is usually one of the bigger-ticket items on anyone’s budget, and any savings here can go a long way — longer than skipping your guilt-ridden daily Latte.

7. Check your subscriptions

Oh, but you don’t have that many, right?

Guess how much average Americans think they spend on subscriptions — $80/month.

Guess how much average Americans actually spend on subscriptions — $240/month.

Now, are you sure you don’t have that many?

It is always a good idea to check which subscriptions you are paying for, at least once a year. On one hand, you could realize it is a waste of money and save a few dollars. On the other, you could be reminded of the subscriptions you own and make better use of them. There’s no losing here.

A few hours spent annually can set your financial life up for success — and your mental health too. After all, there’s something to be said for the peace of mind in knowing all is well with your hard-earned money, isn’t it?

Want even more checklists to tick off? Try these articles:

  1. The Ultimate Personal Finance Checklist for Newlyweds
  2. The Ultimate Personal Finance Checklist Before You Turn 40
  3. The Ultimate Personal Finance Checklist Before You Turn 30
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