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At the end of the year we do our Annual Finance Meeting together where we work out:
It is one of the most exciting meetings of the year. This article will tell you how we run our meetings in the hope that it will inspire you to run your own Annual Finance Meeting and track your numbers! How do you think you did in 2023? Do you even want to know?!
Why track your finances?
What gets measured gets improved. This is a key life principle. If you want things to improve then focus on them and measure them so you know if you are going in the right direction or not!
If you don't know how much you are spending do you even know if you are spending more than you earn? Is there a gap between your income and spending? If there is no gap and you spend everything you get every month you are heading towards a financial disaster in retirement! The key is to be conscious of your finances, know where the money is going and start investing so you can live comfortably in retirement.
Maybe you're thinking "there's no point doing this, I know my money was a mess in 2023". Even if you feel like 2023 wasn't a great year for you financially, in fact I would say ESPECIALLY if things didn't go well money-wise for you in 2023, the Annual Finance Meeting is a must.
So you can dig into exactly what you're going to do differently in 2024. So you can see where your money actually went in 2023. And, most importantly, so that you can have the most epic "before-shot".
What do I mean by this?
You've seen them... the before and after photos when people lose a tonne of weight. The worse the before-shot the better... poor lighting, push out the belly, poor posture.
This is your chance to take your before shot before you make your epic transformation in 2024.
IMPORTANT: This isn't an opportunity to beat yourself up. This is so you can learn from what you did and consciously decide how you want your future to be.
I can feel you're itching to start so let's get into it! How to run your Annual Finance Meeting.
Annual Finance Meeting
The first thing you need to do is figure out your net-worth at the end of the year and second how much you spent in the year.
These are the two most important things to track and Katie "spreadsheet" Donegan has created a couple of convenient tracking spreadsheets for you to do this. Read on to find them!
We started doing this in 2015. I still can't believe we have been doing this every month since then and holding Annual Finance Meetings every year for the last 8 years!
Don't worry if you haven't done that, most people aren't like us! The best time to start is now. Download the files that are below (keep reading!) and do your December 2023 figures. If you are feeling frisky you could do all of last year's figures in retrospect!
DO WHAT YOU CAN and figure it out as you go! We are here to support you!
All you need is a spreadsheet like the one above, an hour or so, maybe a friend, partner, lover to do it with and the biggest and most important thing is to make it........
This is one of the things we look forward to most each month and even more so at the end of the year. We love seeing how we have made progress, we chat, and there is NEVER any blame. If it goes wrong we just figure it out together.
We also go out for the most amazing breakfast each time we do it. Great coffee, nice food, lovely location and a good chat. All the ingredients of a nice time and I know deep within my soul that tracking our finances and measuring our progress is what helped us get to financial independence.
Annual review meeting format
"What numbers Alan?!" I hear you shout
The three elements are:
a) Net-worth (how much you have)
b) How much you spent
c) How big is your gap - the difference between your income and spending. Did you make a "profit" personally this year?
Let's look at each in turn...
a) Net-worth. Click on the file to the right and you will be able to download a funky spreadsheet where you can track your net-worth each and every month and build up a yearly picture. We go through each of our accounts and input the latest numbers. For a full guide to measuring your net-worth click here
b) Spending. We also have a bunch of resources to guide you through how much you spent in the year and to calculate your 2023 wealth-building rate. Remember, if you're new to this, just start with December 2023. Or if you're feeling frisky, look at your spending for the whole of 2023 so you can do the full Annual Review Meeting.
You can make this as detailed as you want.
Level 1: work out how much you spent overall, one figure. This is SUPER useful to know and better than 99% of the population who have no idea how much then spent!
Level 2 (you will be extremely tempted to do this after you've done level 1): work out how much you spent in different categories
Level 3: ask yourself if you got value from what you bought
Check out this article for detailed help as to how to work out how much you spent in the year.
2. How much have the numbers changed?
a) Net-worth. We then look at what our net-worth was at the start of the year and what it was at the end of the year and if there is any difference! We hope that you got to keep some of your hard-earned cash for yourself and got wealthier! Our net-worth went up by 18% this year which is amazing! Got to love investing and market gains.
b) Spending. How much was our overall spending? Was it higher or lower than last year? If you are spending more than you earn you are in trouble.
c) How big is your gap? What was your overall gap for the year (compare how much you earned with what you spent). What did you do with that gap? Was it bigger or smaller than last year? How might you increase your gap next year?
3. Discuss the results. What did you notice? What have you observed? We look at the numbers and this always sparks a lively debate between us. Has our 4% figure gone up? Have we spent more in different categories compared to last year? What was the most fun money spending?
4. Questions - we then ask ourselves a bunch of questions and jot down some answers. We love to learn what was good, what wasn't and how we can improve for 2024!
5. CELEBRATE! Even if the stock market hasn't gone up (it goes down 1 out of every 4 years on average) you have to celebrate that you are doing the work to look after your finances. Celebrate that you are making it happen. Then leave the rest to the power of long term compounding!
6. What do we want to do this year? Then the final part of our annual finance meeting is getting excited about the next year. We talk about what we can earn, we talk about our spending, we talk about using up our tax free allowances. We get excited about building on the achievements of the last year, or fixing it where we made mistakes!
That's it! Quite simple. Looking at the numbers, tracking it and then taking action to improve it. If you did this every single month as a monthly finance meeting and then an Annual Finance Meeting it keeps you focused on your finances.
And if you are focused on your finances then you will make changes, you will work to improve them. Where focus goes energy flow. Focus consistently on your finances and you will be amazed at what you can achieve over the years!
Read on for what happened to our finances.
2022 was a rocky year in the stock market. Inflation post covid was raging, Russia invaded the Ukraine and the market didn't have much confidence in future earnings! As a result it was a ROLLER COASTER of a year.
This is a chart of our net-worth and what happened to it in 2022
As you can see we started the year on £1,748,559 and ended the year on £1,598,330. By anyone's standards that is not a good year. We were down £148,000 over the year which was all down to our investments.
And look at that rollercoaster. Up and down every month with HUGE swings! if we had been emotional investors, which a lot of people are, we might have pulled our money out of the market and made huge losses.
Did we actually lose £148,000 that year? NO! We had the same number of units of index funds. In fact we actually owned more because we bought more throughout the year.
What am I trying to tell you? Some years it doesn't go well. This is to be expected! 3 out or 4 years you will be laughing into your pot of gold and market gains. On AVERAGE the stock market increases 12% a year and the price of this is the rollercoaster up and down and that 1 out of every 4 years that hurts.
If you can put up with that and keep going it is amazing what will happen for you!
Was 2023 any better?
We were excited to see if this year was any better. We knew we were heading to a good year as November has seen a massive market gain. But you never know what is going to happen next in the investing game. Anyone who tells you that they know what is going to happen next is full of shit!
We were super surprised that the market shot up in December and we were at our highest ever net-worth. After a tough 2022 this was a sight for sore eyes!
We started the year at 1,598,330 and ended the year on 1,881,525! That is incredible. We had increased our net-worth by £283,000 which is 18%! WOOHOOO!
I ordered another Americano coffee (it was 9,000 Colombian Pesos, about £1.75) to celebrate.
We worked out our 4% figure again to see how much we had to live off each year from now. We chatted about the figures and enjoyed looking at it.
I then asked Katie to create us another chart that we could have a look at. This next chart puts 2022 and 2023 into perspective.
All time net-worth chart
This chart shows the Donegans all time net-worth chart, starting from December 2015. This is total net-worth since we started tracking properly. Most of the early gains were a combination of us increasing our income and AMAZING market gains across those years. I still remember the year that the market went up 30% and I had never felt richer!
If you look to the right of the graph you will see the little wobble that was 2022! When you look at this scale it is a lot less jarring than the 2022 graph above where it looked like we were on a crazy rollercoaster. At this scale 2022 looks like a little blip and then the further out we go timewise the smaller it will seem!
Why am I telling you this? Because I want you to avoid getting caught up in the monthly highs and lows. We are all in this for the decades and if you look at your investments over decades the monthly fluctuations seem almost irrelevant.
And yes even if you are 60 or 70 you will probably live another couple of decades you are absolutely in this for decades.
Highlights from our discussions afterwards
We had a super chat. I made notes in OneNote and we loved talking about what had happened. Here are some of the key learnings we got this year.
You can not know if you are heading in the right direction or not unless you measure your spending and how much money you have (your net-worth). We do not want to run out of money in retirement! If we aren't tracking our spending and investments how do we know if it is going to last?
If you are in the phase of life where you are building up your money and you aren't tracking, how do you know if you are building wealth or not? How do you know if you will have enough for retirement? How do you even know if you are spending more than you earn?
Use the spreadsheets the amazing Katie "Data" Donegan creates and track your finances. Future you will thank you for it. Current Katie and Alan are SO GRATEFUL for the work that past us did to get us here.
Do something today that future you will be grateful you did.
If you have any questions let us know in the comments.
Sending you huge love.
Katie and Alan
We are not financial advisers, nor do we claim to be. This is not financial advise. We are just a couple that has figured out the money game and wants to help you. Make you own decisions! You can read the full disclaimer here.