Don't Wait Until January First to Plan Next Year

December is the Perfect Time to Review the Current Year and Plan the Next Year

As the year comes to a close, it's time to begin looking to next year and developing a plan for how you want your finances to improve in the coming year. Spend the last few weeks of the year creating your financial plan for next year, and use how things have gone this year as a basis for that plan.

Why Not Wait for New Year's Resolutions?

December is the ideal month to reflect on the year.  Many naturally look back on the year during the holidays, whether it be looking back at what they were thankful for at Thanksgiving, or stressing about money and family during Christmas or other holidays.

If you wait until January to begin planning, the holiday rush will likely have left you without much energy. Additionally, January 1st brings with it a new year, and with the new year, inertia. New Year's Resolutions are so popular because it is easier to mentally put your old habits in the past as a new year begins. Once the year begins, however, you are much more likely to look at changing your habits.

Planning the new year in December means you will be ready to begin implementing the plan on day one. 

Reflect on What Has Gone Well

Begin your planning of next year by evaluating how this year went. There will likely be many successes and many failures you have experienced over the year. Take time to celebrate the successes and use them as encouragement for next year's plan. Nothing motivates you better than to see how your actions and efforts in the past were rewarded with success. 

Use What Hasn't Gone Well as a Foundation For Next Year

At the same time, review your failures -- but don't be discouraged by them. Your failures do not define you, they are simply things which didn't go the way you planned. Look to see how you can do things differently in the new year to improve your chances for success. You have never failed until you have stopped trying.

Prepare to review your year by gathering your goals for the last year and looking at how much you've accomplished toward each goal. Check off the goals you accomplished, and note how close or far you are from your other goals.

Your financial documents, including your budget and net worth statement, should provide you with most of the information you need to evaluate your goals. They will also provide you with an honest look at how your financials have changed over the year.

Four Questions Can Help Plan Next Year

Armed with an honest understanding of your financial situation, ask yourself questions about what you could do next year.  Look for areas to improve the things within your control, to get better results from what you can influence, and to better respond to things you can't control. 

What Did You Do?

Start by identifying the actions you took this past year which contributed to you accomplishing your goals, or pulled you further from your success. Identifying what you did that contributed to you goals will show you what to build on or repeat in your new year plan.

Also identify the things you did poorly, or you wished you would have done differently. Don't beat yourself up over what you could have done, but focus on what you can do differently in the next year. The things you identify you should have done differently are your best opportunities to improve your financial situation next year.

What Could You Influence?

Not everything in your financial plan is within your control, but there are many things you can influence to get a better result. Your boss may control how much of a raise you get, but you have the power to improve your skills, be a more productive employee, or improve the company's bottom line. You may not control your raise, but you can heavily influence the factors your boss uses to determine your raise.

In reviewing areas of your life that went well or didn't go well, avoid seeing yourself as a bystander watching events unfold. You achieving your financial goals is dependent primarily  on your actions. No one is going to work as hard or be as dedicated to achieving your financial goals as you are.

Take control of your life by focusing your efforts and your plans on your actions. When you identify a situation in the past year which impacted your finances, and over which you had no control, begin by identifying what you could do or have done to influence the situation. Then go about building those influences into your plan for next year.

Returning to the example of your boss having control over your raise, by identifying the things you can do to influence your raise, you can build a plan for next year that increases the chances of getting a raise. During your review, your boss hopefully gave you areas for improvement which were used to justify you not getting the raise you wanted. Use these areas as a checklist of things to do in the new year. And if you are in a dead-end job with a boss who will never give you a raise, then take control by putting a plan together to find a new job, and a new boss. 

What Was Out of Your Control?

Then there are some ares which impact your financial plan over which you truly have no control nor influence.  Even here, you can identify opportunities to build a better financial plan for next year. While it is true there are impacts on your finances which you have zero control or influence over, you always have complete control over how you respond.

When you identify something which impacted your finances over which you had no influence, take notice of how you responded to each of them. If the occurrence was positive for you, identify if you responded in a manner that maximized the benefit. If the occurrence hurt your goals, identify how you could have responded differently to either minimize the damage or actually take advantage of the situation.

This idea is the fundamental concept behind re-balancing your portfolio. You have zero control over what happens to the stock market or the bond market. You have complete control, however, over what you do with your investments. When the stock market drops, you have a choice. You can sell off stocks, do nothing, or choose to buy more. Your response to the stock market is actually the determining factor in how well your investments perform.

We often think things out of our control have immense impact on our life and our finances. The truth is, only our response to those things matter. This is the reason why the Dalbar's Quantitative Analysis of Investor Behavior identified the average investor earned only 2.6% while the market returned 7.6%. According to Dalbar’s study, investor choices, such as when to buy and sell, are the biggest determinant on their returns. How the stock market did was largely irrelevant by comparison.

What Would You Like to Have Done Better?

Finally, close with a broad question of what you would like to have done better in the past year. You may have already identified many of these things with the previous questions, but asking a broader question such as this might help you to think more creatively about ways you can improve your financial plan for the new year.

As you identify things you would have like to have done better in the previous year, you'll naturally be building a plan for the next year. The only step left is to rewrite what you would have liked to to better as things you plan to do in the new year. By focusing on how last year could have been better, you can develop a solid plan of actions to improve your financial situation over the coming year. 

Take the Purposeful Finance Challenge

In just a few minutes a week, you can move toward financial independence. Each week you will receive a simple action item to take to improve your financial situation. Visit our challenge page and commit to build your financial plan one week at a time.

Joshua Escalante Troesh.jpg

Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. His career provides him with a unique insight on personal financial, having been a VP at a financial institution leading up to 2008, and involved with technology and internet stock research leading up to 2000. He can be reached for comment at