Written by The year is drawing to a close, and December is the perfect time to look back, reassess, and prepare for what’s ahead. Whether you’ve had a fantastic year or hit a few financial bumps along the way, this is your chance to review your financial goals, rebalance your portfolio, and plan for a stellar new year. Let’s close the year on a high note and set ourselves up for success in the months to come!
Step 1: Review Financial Goals – Celebrating Wins and Learning from Misses
Before you can set new goals, you need to evaluate how you did with the old ones. Did you hit your targets? Did you fall short? Either way, it’s okay—this is a judgment-free zone. Reviewing your financial goals is about learning and growing, not beating yourself up.
How to Review Your Goals
- List Your Goals: Write down the financial goals you set at the start of the year. These could include saving a specific amount, paying off debt, or earning a certain percentage return on your investments.
- Assess Your Progress: Be honest with yourself. If your goal was to save $10,000 but you only managed $7,000, acknowledge it and think about why. Maybe unexpected expenses came up, or maybe you didn’t account for how hard it would be to avoid those Amazon impulse buys.
- Celebrate Wins: Did you hit or exceed any of your goals? Celebrate them! Treat yourself to something small or simply give yourself a well-deserved pat on the back.
- Learn from Shortfalls: If you didn’t reach certain goals, don’t panic. Use this as an opportunity to adjust your approach. For example, if you aimed to invest more but found it intimidating, maybe it’s time to consult a financial advisor or take a course.
Example: Sam’s Year in Review
Sam, a software engineer, set three financial goals for the year: save $15,000, max out his 401(k), and start investing in stocks. By December, he had saved $12,000, contributed the maximum to his 401(k), but only dabbled in stocks by buying a few shares of Apple. Sam feels good about what he accomplished but decides he’ll focus more on researching stock investments next year.
The Takeaway
Reviewing your goals helps you identify what worked and what didn’t so you can set more realistic and actionable goals for the coming year.
Step 2: Rebalance Your Portfolio – Keep Your Investments on Track
After a year of market ups and downs, your portfolio might not look the same as it did in January. Rebalancing is the process of realigning your investment portfolio to match your target allocation. Think of it as giving your portfolio a tune-up.
Why Rebalancing Matters
Over time, certain investments may perform better or worse than others, throwing your allocation out of whack. For example, if your original allocation was 60% stocks and 40% bonds, a strong year for the stock market might leave you with 70% stocks and only 30% bonds. While that might sound great, it also means your portfolio is riskier than you intended.
How to Rebalance
- Review Your Allocation: Look at the current allocation of your portfolio. Compare it to your target allocation (e.g., 60% stocks, 30% bonds, 10% real estate).
- Buy Low, Sell High: If stocks have done well and bonds haven’t, you’ll sell some stocks and use that money to buy bonds. This helps you lock in gains and maintain your risk level.
- Automate It: Some investment platforms and robo-advisors offer automatic rebalancing. If you’re not keen on doing the math yourself, this can be a lifesaver.
Example: Rebalancing in Action
Emma, a young professional, started the year with a 70/30 stock-to-bond allocation. Thanks to a strong stock market, her portfolio is now 80/20. While she loves the growth, Emma knows her risk tolerance isn’t that high. She sells some of her stocks and reallocates to bonds, bringing her portfolio back in line with her original plan.
The Pros and Cons of Rebalancing
Pros:
- Maintains Risk Tolerance: Keeps your portfolio in line with your risk level.
- Locks in Gains: Helps you take profits from high-performing investments.
- Disciplined Approach: Prevents emotional investing by sticking to a plan.
Cons:
- Transaction Costs: Buying and selling can come with fees.
- Tax Implications: Rebalancing in taxable accounts may trigger capital gains taxes.
- Time-Consuming: If you manage your investments manually, rebalancing takes time and effort.
Pro Tip: If you’re worried about taxes, focus on rebalancing within tax-advantaged accounts like IRAs or 401(k)s.
Step 3: Plan for Next Year – Setting New Goals and Building a Roadmap
Now comes the fun part: dreaming big and planning for an even better year ahead. Use what you’ve learned from this year to set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals for next year.
How to Plan Effectively
- Set Priorities: Decide what matters most. Is it saving for a house? Building an emergency fund? Growing your retirement nest egg?
- Break It Down: Big goals can feel overwhelming, so break them into smaller, actionable steps. For example, if your goal is to save $12,000, aim for $1,000 per month.
- Automate Where Possible: Set up automatic transfers to savings or investment accounts. This removes the temptation to spend and ensures you’re making consistent progress.
- Review Regularly: Don’t wait until next December to check on your goals. Set quarterly or monthly check-ins to stay on track.
Example: Planning for the Future
Mark and Jess, a married couple, want to save $20,000 for a down payment on a house next year. They calculate they’ll need to save $1,667 per month. They automate their savings by setting up direct transfers from their paychecks into a high-yield savings account. To boost their efforts, they plan to cut back on dining out and use the extra cash to reach their goal faster.
The Pros and Cons of Goal Setting
Pros:
- Clarity: Clear goals give you direction and motivation.
- Accountability: Writing down goals makes you more likely to stick to them.
- Flexibility: You can adjust your goals as life changes.
Cons:
- Pressure: Unrealistic goals can lead to stress or disappointment.
- Overplanning: Spending too much time planning can lead to analysis paralysis.
Pro Tip: Make your goals visible. Write them down and put them somewhere you’ll see daily, like your desk or fridge.
Finish Strong, Start Stronger
December is the month to tie up loose ends and prepare for a fresh start. By reviewing your goals, rebalancing your portfolio, and setting a clear roadmap for the new year, you’re setting yourself up for financial success. Remember, progress is more important than perfection. Celebrate your wins, learn from your challenges, and keep moving forward.
How are you closing out your year? Share your wins, lessons, and plans for next year in the comments below. Let’s inspire each other to make the coming year the best one yet!