Getting your finances in order for year end.

Dec 29, 2015

Getting Organized Now Will Help You Draw a 2016 Financial Road Map

The end of the year can mean taking stock of accomplishments while recalibrating goals for the next 12 months. When it comes to personal finances, doing both require a clear picture of where you've been and an accurate sense of what's ahead.

Getting organized is key to achieving that clarity. That includes finding and filing bills, account statements, documents needed for tax purposes and records of things like current insurance policies. Here a quick guide to help you pull things together:

Sort things out

Start by dividing all those finance-related papers into three piles:

  1. Keep in easy reach items needed for filing your 2015 tax returns, including W-2 and 1099 forms, as well as pending bills, current insurance policies, and recent bank, credit and retirement account statements. Also put receipts for major purchases into this group.
  2. Store permanent records such as birth certificates, Social Security cards, education transcripts or certificates, medical histories and legal papers such as marriage certificate or divorce decree. Some of these items are best kept either in a save deposit box or in a fireproof safe at home. If you keep them at a financial institution, put copies in your files for easy reference.
  3. Toss out old billing and account statements once they've paid or reconciled, or you have an annual summary in hand. Also get rid of expired warranties and insurance policies no longer in force. Tax returns and other documentation more than seven years old are safe to heave.

Add it up

Once you've squared away the papers, make an assessment of what you owe, including on installment loans such as a mortgage or for a car, any credit card balances, education-related debt, rent and other personal obligations. Determine the minimum monthly payment for each and add it all up, so you'll have a baseline for money needed to cover these expenses each month. Add to that the average monthly costs for routine needs like food, fuel, clothing and insurance. Then total up your take-home income. Set the two totals side by side to lay the foundation for a budget.

Even if you've been following a spending plan for 2015 it's best to start the New Year off with a fresh take on it - things change, after all, and unless you've been tweaking your financial road map regularly, it can easily get out of balance.

Set objectives

A road map, financial or otherwise, isn't much use without a destination. So set some goals for the year and for each month or pay cycle. Make them realistic and attainable, both over the short run and long term. Your objectives should be specific, with a definite time frame: I'll save $50 a month to buy a new television as a family present in December. Or, I'll add $2,000 to my retirement fund by year-end.

If you're overspending, you'll need to find things to cut or  figure out how to boost income. That may mean scoring a raise or bonus or landing part-time work.

Before sitting back to enjoy a holiday repast, make sure you've taken care of things that must be done by year-end, such as charitable donations to be counted against 2015 income or adding a catch-up payment to a 4012 (k) retirement account. Once you've tidied things up and have it all squared away, you can enjoy the season and worry less about financial surprises that may pop up down the road.

Guest Blog Post by Ted Bunker, NerdWallet