With December, and consequently the end of another year approaching, it is important to perform certain financial checks for a better new year. Be it from the perspective of savings, expenses or tax benefits, these checks are essential to get a clear idea of your financial status around the year end.
Here are six checks for a better new year -
#1. Collect all data and documents
Arrange all your receipts, records and important financial documents systematically. Ensure that all necessary documents are in correct order and place. In case there are papers that are not in your possession, arrange to get hold of such papers and records.
#2. Review your expenses
Review the expected expenses and the expenses made during the year. Analyse the expenses that went higher than your expectation and check if there were any unexpected events during the year that threw you off your budget.
Reviewing and analyzing your expenditure in this manner will help in better planning and budgeting for the remaining part of the year and for the next financial year.
#3. Review the emergency fund
Maintaining an emergency fund is vital to keeping your short term as well as your long-term financial goals on track. Such a fund can help you get through any kind of unexpected rough patches during the year.
Take a stock of the emergency fund before the beginning of the next financial year. Analyze the availability of the fund and how much is needed to create a desired financial cushion.
#4. Review your insurance cover
Review your insurance coverage and ensure that the cover you have is the right amount for you, based on your income, expenses and such other criteria. It is important to check that you are not under or over insured.
#5. Review your debt situation
How much debt are you facing right now? How much are you paying in EMIs for home loans, car loans, Credit Cards, Personal Loans etc. You should check your outflow and see when will you be able to repay your loans. Loans like credit card debt, personal loans, and car loans should always be paid off as soon as possible.
#6. Review your financial assets
You should know what all your financial assets are worth. All your Fixed Deposits, Cash in Bank, Emergency Funds, Equity holdings (including equity mutual funds) should be put together to arrive at that figure. This will tell you how much of a “liquid” (cash or instruments which can be converted into cash relatively quickly) cushion you have as of now.
Each year this figure should become larger.
#7. Finally, check your net worth and set a target for December 2017 – Where do you wish to be?
Once you know how much your liquid assets are worth, combine that number with the value of any fixed assets such as a home or land. To this, add your annual earnings. This tells you your financial worth. This number is something you should add to every year.
This check will also tell you how far you are from any goals and how healthy you are from a financial perspective.