Have You Had Your Fiscal Physical Yet? Why End of Year Works Just as Well for Your Financial Wellness.

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How did we get here? By “here” we mean almost at the end of the year. If it seems like this year flew by, you’re not alone. And if there are still a few things on your to-do list from January to check off, know that you’re not alone there either.

For some of us, our goals going into the year were about careers, health and wellness, travel, or maybe even purchasing a house. Others of us may have made plans to get our financial houses in order. If you still haven’t tackled that one, we’ve got good news. It’s never too late to start… so, how about right now?

Just like your annual trip to the doctor (we can pause here if you need to schedule that one too), a fiscal checkup should be on your yearly list of to-dos. Making this a habit makes it easier to track progress and identify issues before things go off the rails.

So what should be included in your annual fiscal physical?

Here are 5 areas to focus on (plus one bonus entry) to ensure you are on track. Go ahead and grab a pencil and some paper; the doctor will see you now.

Budget Beats

Oh boy, this probably feels like a biggie, and in many ways it is, but it doesn’t have to be so daunting. In fact, budgets are built to be broken down into smaller bits to allow for decisions to be made on all different levels.

Your budget is your financial plan for the year or more. Amazon.com has over 1000 books on budgeting, so if you don’t have a system set up, now is a great time to do just that. Here’s an example of how to create one that might be easy to adopt and stick with.

Assuming you have a budget in place, taking a look at where you are in that budget year-over-year is a key part of your fiscal physical.  Ask yourself these questions:

  1. In what areas was I under budget?
  2. In what areas was I over budget?
  3. Were there changes in income (up or down)?

Taking the time to answer these questions thoroughly and thoughtfully can provide incredible insights that will help you plan for next year and the years after that. If there was one more question we’d add to that list it would be, “What didn’t I budget for?” which brings us to the next part of our check-up.

Having an incorrect "estimate" of your spending is one of the most common ways a budget can be thrown off. Keep a close account of how much you've spent to make sure you're only spending money you can afford.

Review Your Emergency Fund

Your emergency fund helps take the sting out of unexpected expenses. By having money set aside for the “unknown unknowns”, we are better prepared to weather literal and proverbial storms. According to NerdWallet.com, the rule of thumb for how much should be in your emergency fund is “at least three to six months’s worth of expenses.”

Building an emergency fund can take time, with most folks choosing to set aside funds on a consistent basis over months and even years to build up their account. Be sure to bake this into your budget and hold yourself accountable. If the day comes when you need it, your future self will thank you for your diligence.

During your check-up is a great time to look to see if and how you had to use any of these funds over the course of the year and to make plans to replenish funds that were deployed.  Also, look to see if new items need to be added to your budget if it becomes apparent that these “emergency” expenses will occur more frequently.

Check Your Debt

77% of Americans have some sort of debt, so odds are you are in this category. Do you know what your debt is at this moment? Do you know your plan for repayment? These are questions you can and should ask yourself as part of your fiscal physical.

To be clear, debt isn’t bad (or good), but not having an awareness can be problematic. Taking the time to dig into your debt is time well spent.

Shift next to your plans for repayment. There are two popular strategies, “snowball” and “avalanche.”.

Debt Snowball is when you prioritize balances, paying off the smallest debts first, then moving on to the bigger ones next. This method builds motivation by settling debts faster.

Debt Avalanche is when you prioritize interest rates, paying off the highest interest rate debt first, then moving on to the next highest after that, and so on. Over time, you will pay less interest.

Whichever method you choose, having a plan in place and sticking to it is a great way to stay on top of your own money mountain.

Bonus materials: We believe this topic is an important one and we’ve written several informative articles over the years. Be sure to check out our entire library of posts, especially “9 Tips For Paying Off Your Credit Card Debt“ and “How To Get Out of Debt In The New Year.”

The Avalanche method of paying off debt will save you money in the long run, but many people like the psychological aspect of seeing debts disappearing quicker. The best method is the one you will stick with.

Retirement Readiness

Who doesn’t dream about the day they can call it a career and retire? In fact, 4.1 million Americans reach retirement age each year. Being ready for the changes that come when we walk away from the working world is incredibly important, which is why assessing your retirement readiness is a key aspect of your fiscal physical.

Do you have a 401(k) plan or other retirement account(s)? Great! Here are a few questions to ask yourself to determine if changes are necessary.

  1. How much are you contributing?
  2. Are you contributing enough to meet your goals? (Try this online calculator, or better yet, consider tapping F&M Bank’s Wealth Management resources, learn more, and schedule a meeting today.)
  3. Are you taking advantage of potential matches from your employer?
  4. Are you maxing out your contributions?
  5. If you are maxed out, should you open a traditional or Roth IRA?

Touch Up Your Taxes

We hate to be the bearers of bad news, but tax time is coming like clockwork. The end of the year is the ideal time to take a quick look at your situation and make necessary corrections before they can cause headaches.

Here’s what to look for:

  1. Are your tax withholdings correct? (Here’s a calculator courtesy of the IRS to help estimate your withholdings.)
  2. If you are self-employed or receive income that doesn’t have taxes withheld, make sure you’re making the correct quarterly estimated tax payments. This helps in two ways: you can avoid a large bill come April and the possibility of underpayment penalties.

Consider accelerating deductions at the end of the year - making an additional charitable contribution is a great way to do this while also participating in Giving Tuesday.

Bonus: Consider College Expenses

The average cost of a 4-year college education is now over $100,000, so saving and planning ahead makes a lot of sense. A savings plan such as a 529 plan can be a powerful tool to save for education expenses and is often combined with other deposit products including our Coverdell Education Savings Account and CDs.

If covering or contributing towards college costs is on your radar we encourage you to read our article on helping your student pay for college. Working with a member of our wealth management team can be a real benefit too, putting you and your loved ones in a position to succeed.

Breathing Easier

Just like seeing your doctor regularly is an investment in your health, performing an annual check-up on your finances can pay off in the long run.

At F&M Bank, we strive to be your trusted resource for financial planning and advice. Reach out to us today or visit your local branch in the Shenandoah Valley to learn how we can help keep you and your finances in top shape.