With tax season right around the corner (already?), now is my favorite time to take stock of last year financially speaking. Tax paperwork is arriving in the mail and I find it a natural time to take a personal finance snapshot.
What is a personal finance snapshot?
A personal finance snapshot is simply when you gather and review information regarding how you earned and spent your money last year. It’s a time to review how you’re doing financially and determine if you need to make any changes. It’s a time to celebrate new milestones and goals achieved and make plans for any financial challenges you’re facing.
Why take a personal finance snapshot?
Even if you’re doing everyday financial tasks like tracking your spending, it’s still a good idea to take a higher level view of your money on a regular basis. You can learn all kinds of helpful insights through this kind of a review. You’ll notice things that don’t show up in just one month. Things like: Where are you spending most of your money? How has your income changed over time? How much do all those groceries actually cost? How much is that phone costing you? You may or may not like the answers but at least you’ll know what’s going on. Ignorance is not bliss! It’s a lot nicer to be organized and informed. The nitty-gritty – what information to collect Of course this depends on how much information you’re keeping and how much of a numbers person you are. I don’t like to spend hours on this task, so I keep it relatively simple. Here’s what I do. While I’m gathering our tax paperwork for our accountant, I jot down a few figures to see what kind of financial shape we are in. I drop them into a simple spreadsheet.
I collect the following information for the previous year:
income (pre-tax and after-tax– straight off the W2 form) amount saved retirement contributions groceries (ouch) amount spent on our largest budget categories mortgage principal and interest (double ouch) utilities kids lessons and activities property taxes spending for other major categories
Hopefully you’ve got a system in place for your paperwork and you’re using budgeting software making it easy to lookup these figures.
When our tax returns are done, I’ll also add in the amount of federal and state income tax we paid last year. If you have numbers from previous years, make a column for those too. If you can’t fill in all the blanks, don’t sweat it. Enter as much as you can. This is just for your own use and no one is going to audit your work 🙂
Once you’ve got all your numbers plugged in the fun can begin.
(Seriously – I love this kind of stuff!) Even if you’re not a numbers person, you can glean a lot by spending some time looking at your report. If money is a difficult topic for you and your spouse, you might want to read my tips on how to discuss money with your spouse when times are tough.
When your numbers are entered, look at what stands out to you.
areas where you’re doing well
areas you want to improve
Ask yourself questions like this: Did we reach our financial goals or targets last year? Are we happy with our savings contributions? Do we need to make any changes to our retirement accounts? Are we spending too much on _____? Can we afford more for _____?
Summarize it all
If you’re very ambitious, you might write up a couple paragraphs summarizing your year from a financial perspective. Here are some statements to get you started: 2014 Personal Finance Summary
Last year was a [busy | difficult | exciting | fulfilling | etc.] year for us.
Our income went up / down by _______.
We donated $___ to charitable causes.
We made the following large purchases:
We have $________ remaining on our mortgage and we are scheduled to pay it off in ____ years.
The following major changes in our family had a big impact on our financial situation:
We did a great job at managing these areas of our finances:
We need to improve in these areas:
In order to make these improvements, we are going to:
We have these financial goals for this year:
Print out your snapshot and summary and file it in a binder. Paper seems a much more suitable medium than electronic for a report like this (although you should also keep an electronic copy). You can make notes, thumb through the pages with your partner or an advisor and generally use them much easier than an online report. You can do this exercise every year and see the progress you’re making or marvel over the hard times you’ve gotten through.
An hour taking this snapshot is worth a lot.
Personal finance tasks like this may not be as enjoyable as baking cookies or as rewarding as decluttering. Even so, taking an hour to look over your finances at a high level can make a big difference in helping you to make your money work hard for you.
Whether money is tight or you’re financially secure, this activity is highly effective for every household.
Have you ever taken a personal finance snapshot?
You Need a Budget software (my review here) Build a Budget that Works Ebook Christian Personal Finance free e-course A short course on good personal finance management The Total Money Makeover If you want to get fired up about taking control of your finances