I want to take a day off from looking back at 2013 and forward at 2014, but don’t worry, there is much more in store for you in the coming days.  Today, I want to share with you one of my New Year’s Day rituals.

 

Credit Review

First, I visit www.myfico.com and get my credit report from all three agencies.  MyFico costs about $55 for all three and there are cheaper (and even free) versions, but I happen to like this because it’s easy and the data presentation is excellent.

I look at the scores, but I spend more time looking at the analysis that they provide that explains the score.

While the exact scoring methods are a bit of a secret for each credit bureau, the scores are essentially based on your payment history, amount owed, length of credit, new credit and types of credit in use – in that order.  Payment history is the most important, compromising more than one-third of the total score.

I also look through the reports to make sure the data is correct, that there are no errors and nothing looks suspicious.  I also have credit protection products, but the best defense is your own offense.

 

Net Worth Statement

Once I have looked at my credit situation and made sure that everything looks good, I create a personal net worth statement.

Much like a corporate balance sheet, I list the assets first in order of their liquidity – cash in accounts, investment accounts (taxable first, then retirement), physical assets like cars, my home and business interests.

Then I list the liabilities in the same way starting with credit card debt, car loan and home mortgage.  If I had any other debt like outstanding bills, a home equity line of credit or student loans, I would list them here.

With the assets and liabilities all listed, I subtract the liabilities from the assets to determine my net worth.

Like corporate financial statements, I also have footnotes that explain some of the details, like how I assessed the value of my home, the terms of my mortgage, etc.

Since I keep each year in the same Microsoft Excel file, I can see the changes from year to year and measure the progress I’m making on my financial goals.

 

Paperless?  Not yet.

Lastly, I sort through the papers that I have stacked up throughout the year and see what I can get rid of and what I need to keep.

This helps me prepare for tax season because I can organize my charitable contributions, tax receipts and have everything ready for the accountant.

The IRS has a nice publication (can you believe they are so nice?) with information about what you should keep and what you should get rid of.  It’s great resource that you can get by clicking here.

When I transfer the things that I need to keep from my desk down to the fireproof box in the basement, I inevitably see the trust and estate documents, proper casualty insurance, life insurance and other documents that remind me whether anything needs updating.

The whole process takes me about two hours, which really isn’t too bad if you think about it.

With all of this done, I can make some New Year’s resolutions and promptly break them.