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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Can Minors Build Credit Before They Turn 18?

Can Minors Build Credit Before They Are 18?

As a parent, you should always look out for the health and safety of your children. However, this includes their financial health as well. Teaching them how to manage their finances and maintain their credit score will have a huge impact on their future. If you help them establish good habits early and explain which factors will affect their score, it will make it much easier when they become independent. Not only will it become easier to obtain loans when they need them, but also to find and rent housing. So, if you are looking for ways to give them a boost into adulthood, here’s how you can help minors and young adults build credit.

Do Minors Have a Credit Score?

In most cases, minors don’t have a credit score because they have no credit history. If you take a moment to think about this, it should make complete sense. Since you can’t legally enter into contracts until you’re 18, minors can’t get approved for credit accounts.

However, there are some instances where a minor may have a credit score. For example, if the credit agencies mistakenly created a profile in their name, there will be a record of them in the system. Also, if someone stole your child’s identity and used it to open credit accounts, they could have a dismal credit history before they even become an adult. But, you can also help minors build a credit history if they are an authorized user on an adult’s account.

How Can Minors Build Credit Before They Turn 18?

For parents who want to help their children have a strong financial start in life, you can help them build credit before they turn 18. If you feel they are responsible enough, you can make them an authorized user on your credit card account. You will remain the primary account holder, retain authorization for access to the account, and full responsibility for all transactions. However, your children will benefit from your repayment habits and credit history. Although it doesn’t have the same impact as being the primary account holder, it gives minors a way to establish a credit history before they need one. Before you add them though, you will want to check with your credit card company to ensure they report the activity of all users on the account to the credit bureaus. Otherwise, it will not be an effective way to build credit.

Another option is to make your child an authorized user without giving them a physical card. This way, they receive all the benefits without the risk of overspending on the account. Although some credit card companies don’t have a minimum age limit, those who do typically require a minimum age between 13 and 15 for cardholders.

When Can Minors Start to Build Credit?

So, when can minors start building their credit history? The answer to this question really depends on the parent. If your child is responsible and you trust that they won’t abuse the privilege of having a credit card, you can make them an authorized user at any time. Or, you can add them to the account, and give them the physical card when you feel they are ready.

Even if you decide to wait until they become an adult in the eyes of the law, there are still things you can do to help them establish credit once they turn 18. One of the most common things parents do is cosign for a loan or credit card of their own.

Student Credit Cards

Student credit cards are specifically designed to help people start building credit. They work just like any other credit card. However, they typically have much lower credit limits and offer no incentives. While you don’t have to be a student to obtain one, you must meet their eligibility requirements.

Secured Credit Cards

Secured credit cards are another popular option for people trying to repair or build credit. You must pay a deposit, usually equivalent to your credit limit, in order to qualify. Using it to make small purchases and pay them off every month will help you establish a good repayment history. As long as you pay on time, the company will return the deposit when you switch to a standard credit card.

Credit-Builder Loans

Although they go by many names, credit-builder loans work much like secured credit cards. Also known as “Starting Over” or “Fresh Start” loans, these types of loans will require you to hold the amount you borrow in an account while you pay it off. While you won’t be able to access the money until you pay off the loan, it will report your payments and help you boost your credit rating. Not only will it help you raise your credit score, but also qualify for better interest rates on future loans.

Rent-Reporting Services

Unfortunately, if you are already struggling with your own credit score, consigning for another credit account may not be the best option. Another way to quickly build credit is to report bill payments for telecom and utilities. Some companies and landlords will offer the service for free. However, others may charge a small fee. If you pay all the monthly bills on time, it can add several transactions that show a strong pattern of debt repayment. On the other hand, any delinquencies will hurt your credit score.

Begin with a Strong Financial Education

You may decide it is best to wait until your child turns 18. But, you can still teach them responsible financial habits and how to live within their means. This includes showing them how to create and follow a budget, establishing good savings and spending habits, and explaining factors that will affect their credit.

If your kids understand the basics about borrowing and repaying debts, they will have a much stronger start in life.  And since they have time on their side, they can start early and begin building a strong credit history.

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