One: Set-up a folder at home and in your email box for 2014 tax statements.
This will make it easy to gather all the information at tax time. Also, take a moment to look at each statement too to see which mutual funds are costing more in taxes. Some funds have a high turnover rate resulting in higher taxes and it may be better to switch to a more tax efficient fund.
Two: Take a look at how your investments did in 2014.
Look at each investment account and compare the end of year value to the value on January 1, 2014. Start a spreadsheet that tracks each account and update it annually. Even if you use mint.com or another tracking software, it’s helpful to keep a spreadsheet so you can more easily compare one year to the next.
If you use actively managed funds, compare them to a benchmark to see how they performed. The benchmark should be an index of the same investment class or sector. Flag any mutual funds that underperformed the benchmark and then keep your eye on them to decide if and when to sell.
Three: Rebalance if necessary.
If you didn’t rebalance your portfolio in 2014, take a look now. Make sure your asset classes (US large caps, US small caps, international equities, fixed income, etc.) are still within your target range. You’ll most likely need to sell a little of what performed well and buy assets that performed the worse.
Rebalancing at least annually makes sure your risk level stays where you would like it to be. If equities had a good year, then you’ll be over weighted in equities and your portfolio will be exposed to more volatility in the coming year. Rebalancing will also naturally cause you to buy low and sell high.
Four: Review your fixed and recurring expenses.
These are often the easiest costs to reduce. It’s easy to sign-up for things and then not cancel them even when you’ve stopped using them. Go through each one and cancel any that you haven’t used in awhile. You can always sign back up if you find you miss them. Also make a note of any other expenses that you could cut or find a cheaper alternative.
If you haven’t checked-in with your cell phone and cable company lately, make a note to call and see if there’s a cheaper plan. Insurance plans are also a good place to compare rates and make sure all your coverage and deductibles are up to date.
Five: Take a snapshot of your net worth.
Use a spreadsheet and have a category for checking/savings accounts, retirement accounts and taxable investment accounts, real estate (including your home) and valuable personal assets. Look up the end of the year value for each asset and write it down under each category.
Then make a list of any liabilities including mortgages, home equity loans, student debt, car loans, and credit card debt. Your net worth is the difference between the two. Update each year to keep a record of your net worth.
Six: Look over your cash flow for the past year.
Get a general idea of how much income you earned, how much went to taxes, how much you spent, how much went to paying off debt, how much you contributed to retirement funds, and how much you saved in other accounts.
Even if you don’t track your expenses everyday, it’s easy to get an overall view by looking at your end of the year statements for credit cards, checking/savings accounts, and retirement/investment accounts. Start a spreadsheet that you update annually to see how each of these categories change over time.
Seven: Write down any goals, financial or otherwise.
Some ways that have helped me when setting goals: make your goals specific, think big for inspiration, think small for achievability, and have your goals somewhere that will catch your eye each day.
It may help to make the goal an action you do rather than the end goal. For instance instead of the goal being save $100 more each month, the goal could be bringing your lunch to work three days a week to cut down on expenses.
