#AskMelanie: How to Complete a Financial Clean Up

The start of a new year is the perfect time for reflection. What important financial planning have you put aside during the busy holiday season? Now is the time to get caught up. Here is some great advice from the Blunt Bean Counter 

#AskMelanie:

So, what is a financial cleanup? The following are some areas you should be reviewing each year.

Yearly Spending Summary

I use Quicken to reconcile my bank and track my spending during the year. If I am not too hazy on New Year’s Day, I print out a summary of my spending by category for the year. This exercise usually provides some eye-opening and sometimes depressing data, and often is the catalyst for me to dip back into the spiked eggnog 🙂

But seriously, the information is invaluable. It provides the basis for yearly budgeting, income tax information (see below), and amongst other uses, provides a starting point for determining your cash requirements in retirement.

Portfolio Review

The holidays or early in the New Year is a great time to review your investment portfolio, annual rates of return (also 3,5 and 10 year returns if you have the information) asset allocation, and to re-balance to your desired allocation and risk tolerance. The $64,000 question is how your portfolio or advisor/investment manager did in comparison to appropriate benchmarks such as the S&P 500, TSX Composite, an International index and a Bond Index. This exercise is not necessarily easy (although some advisors and most investment managers provide benchmarks, they measure their returns against). I hope to write something in more detail on this topic next year.

PWL Capital on their resource page has market statistics and model portfolio’s that you can use as guidelines or to create your own benchmarks which I find useful.

Rob Carrick of The Globe and Mail in an article (it is behind a firewall) last year, pointed me to this Suggestus site which offers a no cost comparison against thousands of portfolios’. This is a good test check, but since no two portfolios are exactly alike, you need to understand the limitations of this site as an exact bench-marker.

Tax Items

As noted above, I use my yearly Quicken report for tax purposes. I print out the details of donations and medical receipts (acts as a checklist of the receipts I should have or will receive) and summaries of expenses that may be deductible for tax purposes such as auto expenses. If you use your home office for business or employment purposes (remember you need a T2200 from your employer), you should print out a summary of your home-related expenses.

Where you claim auto expenses, you should get in the habit of checking your odometer reading on the first day of January each year. This allows you to quantify how many kilometres you drive in any given year, which is often helpful in determining the percentage of employment or business use of your car (since, if you are like most people, you probably do not keep the detailed daily mileage log the CRA requires).

Medical/Dental Insurance Claims

As I have a health insurance plan at work, I also start to assemble the receipts for my final insurance claim for the calendar year. I find if I don’t deal with this early in the year, I tend to get busy and forget about it.

To facilitate the claim, I ask certain health providers to issue yearly payment summaries. This ensures I have not missed any receipts and assists in claiming my medical expenses on my income tax return. You can do this for physiotherapy, massage, chiropractors, orthodontists, and even some drug stores provide yearly prescription summaries.

Year-end financial clean-ups are not much fun and somewhat time-consuming. But they ensure you get all the money owing back to you from your insurer and ensure you pay the least amount of taxes to the CRA. In addition, a critical review of your portfolio and/or investment advisor could be the most important thing you do financially in 2019.

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I provide a wide range of professional accounting, income tax preparation and consulting services including:

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