The year-end money review: how to close a year and know what happened
Closing the year is not an accounting exercise. It is the only way to stop next year being a repeat of the same mistake.
In short
To close your financial year you need six numbers: what came in, what went out, what was left, your net worth at the start and at the end, and the three categories you spent most in. That is enough to compare against last year and decide the next one. It takes an hour if you have records, and it is the step that turns a new year's plan from guesswork into arithmetic.
The year-end close is the part almost nobody does, and the part that makes everything else useful. Without it, a January plan is a list of good intentions with nothing underneath.
1
What came in
For the whole year, not your good month
2
What went out
Everything, cash included
3
What was left
One minus two, and it will not be what you assumed
4
Net worth at the start
Everything you had, minus debt
5
Net worth at the end
The gap from four is the real result
6
Your three biggest categories
Where the money actually went
The six numbers
- Income for the year. Everything that came in, bonuses and side work included.
- Spending for the year. Everything that went out, not counting transfers between your own accounts.
- The difference. If positive, that is what you actually saved, regardless of what you believe you saved.
- Net worth on 1 January. Accounts plus what you owned minus what you owed.
- Net worth on 31 December. The same, a year later.
- The three largest categories, with their annual figures.
With six numbers you know more about your year than most people know about theirs.
What to compare
Opening net worth against closing. That is the honest summary of the year: it went up or it went down. A year with good income and flat net worth says something no other figure says.
Income minus spending against what you thought you were saving. The gap between them measures how much your memory flatters you, and it is usually large.
The three big categories against last year. This is where the real surprises show up, and it is rarely the category you assumed was the problem.
The three questions worth answering
- Which large cost did I not see coming? Everything that appears here goes into next year's calendar, and stops being a surprise.
- Which spending gave me nothing? Forgotten subscriptions, fees, automatic renewals. That is the free cut, with no emotional cost.
- Which large cost was worth every penny? This question matters as much as the other two. A review that only looks for culprits produces a plan that gets abandoned.
If you have no records for the year
Close the year on the last three months and multiply by four. It is approximate, it is far better than nothing, and above all it tells you what you are not recording so that next year's close can be real.
And start recording now rather than in January. Two weeks is enough for the numbers to mean something; waiting for the first of January only guarantees that the next close is another estimate.
What to do with the result
The close feeds four decisions in the new year's plan: how much to set aside monthly for big costs, which fixed cost to cut, how many goals fit, and what the realistic free monthly amount is. How to assemble it is in how to plan your financial year.
The figure worth keeping
Write your closing net worth somewhere you will find it next year. Twelve months later, that one comparison will tell you whether the year went well more honestly than any feeling.
Common questions
- When should the year-end review be done?
- Between 26 December and 10 January, once the year is complete and the next has not started. Any earlier and December — usually the most expensive month — is left out exactly when it matters most to see it.
- What if I did not keep records all year?
- Close on three months and multiply by four. It is an honest estimate and it is enough to plan with. What matters is starting to record immediately so the next close is not another estimate.
- Which number in the review matters most?
- The change in net worth: accounts plus possessions minus debts, at the start and at the end. It is the only one that does not depend on the day you ask, and the only one that reduces a whole year to a single figure.
Try it on your own money
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