The Results of My End-of-Year Budget Review

End-of-Year Budget Review

Every December, I perform an end-of-year review of my finances. This habit has made a huge impact on my savings and investment accounts. Just as any business would do, I evaluate my expenses and earnings to determine my financial health going into the New Year. Although it was tedious in the beginning, I now look forward to the annual budget review. Not only does it give me the opportunity to assess my financial performance from the previous year, but also highlights ways I can improve going forward. After balancing the books, here are a few adjustments I’m making for 2022.

Conducting a Budget Review

Doing a yearly budget review is very similar to creating a monthly budget. The main difference is that you are dealing with 11 more months of expenses for which you have to account. So, it will probably take a little longer to get through it all. However, if you review your budget on a quarterly or monthly basis, it becomes much easier to manage.

First, I look at how much income I had for the year. This is also very helpful for tax purposes as well. With tax season just around the corner, this can also help you spot any discrepancies in the income statements.

Next, I calculate my expenses for the year. I start with recurring monthly payments such as my credit card, utilities, and loan payment. Then I move on to the smaller transactions. This is fairly simple since I only use two accounts: a personal checking account and a credit card. Once I log in to the website, I can review each statement, month by month.  My credit card even provides a spending report that does all the calculations for me. This portion of the budget review is usually the most telling. It highlights my spending habits and patterns, pinpointing unnecessary expenses.

Finally, I deduct my total expenses from my total income. The remainder tells me how much money I should have left for saving and investing. If your numbers aren’t adding up, then you’ll need to check for any other expenses that may not have been included.

3 Ways to Maximize the Budget for 2022

After looking at my finances for 2021, I feel like I’m in good financial health. But, there is always room for improvement. Here are three things I have identified that will help me get closer to my long-term goals.

1. Find Ways to Save More Money.

I’ve always been very budget-conscious and careful with my money. Even with the holiday shopping, I set a strict spending limit, started saving months before, and shopped around for the best deals. As the weather gets colder and Covid-19 concerns are still prevalent, I’m also not spending much on entertainment. All in all, I’m living well below my means and saving about 25% of my paycheck every month.

However, there are always ways to trim the fat and accelerate your savings. By looking at my monthly expenses, I discovered three ways that could help me save an additional $100 each month.

  • The first was to cancel my monthly subscription box from an online retailer. Although I was paying $20 a month, I rarely kept any of the merchandise. So, that was the first line item to go.
  • The next one was to reduce my gym membership fees. As more people are about to start hitting the gym as part of their New Year’s resolutions, local health clubs run great promotions. I found one that saved me 50% on the monthly fee.
  • Combining and sharing streaming services saved me the most money. After discussing it with a few family members, we decided to pool our resources and split the monthly fees. Bundling options gave us an even bigger discount as well. Rather than paying for each service, we now split the cost. For 2022, we are maintaining the three streaming services that we use the most, with each person paying for one. Instead of paying $60 a month, I’m now only responsible for the Netflix bill which costs $17.99 for the premium subscription.

While $100 may not seem like much at the end of the day, it’s more disposable income. And that is never a bad thing to have.

2. Increase Monthly Investment Contributions

Over the years, I’ve had various investment accounts, but never contributed much or managed them well. Therefore, I’m a relative newcomer to the investment game. In 2020, I finally paid off my student debt and become more serious about investment for the future. Once I found a financial advisor I trusted, I took a very aggressive investment strategy to help me catch up. So, I allocate about 25% of my earnings for investing.

A year and a half later, my gamble is paying off. Thanks to steady contributions and well-performing mutual funds, my portfolio saw a 22.5% growth this year. Spurred on by this success, I have decided to contribute even more in the coming year. I have a healthy emergency fund, and no need to maintain large balances. Rather than let my money sit idle in a low-interest savings account, I’m going to put it to work for me. And, with the additional money I will get by eliminating monthly membership fees, I’ll have even more to invest.

3. Look for New Investment Opportunities

Lastly, I want to seek out new investment opportunities for 2022. Although I already have a well-diversified portfolio with a Roth IRA, bonds, and mutual funds, I want to explore other options. One resource which I am not utilizing is my Health Savings Account. Therefore, I plan to max out my contributions next year. However, there are also a lot of other opportunities in real estate and other asset categories. Now that I’ve done my personal budget review, I will also be better prepared when I sit down with my broker to evaluate my investment strategy.

In addition to the self-awareness of personal habits I gain from this exercise, conducting a budget review reaffirms that I’m on the right track. And that gives me more confidence to continue working towards my long-term goals. It also makes me feel more prepared and informed when I review my portfolio with my broker. Having this knowledge gives me a greater understanding and control of my finances. Although you may not need to do as in-depth of a budget review as mine, taking a look at your finances will have a positive impact on your bank accounts.

Do any of you perform an end-of-year review of your finances? What tools help you? We want to hear from you!

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