How to do a mid-year financial checkup

By: Joe Barbieri on September 12, 2016

What is a financial checkup? It is like any other review: the current situation is revisited to see if changes are necessary. There are two levels of analysis that can be done. The first level is the evaluation of your goals and revisiting your assumptions to see if you are progressing as expected. This represents the “big picture” for your plan. The next level is all about the details; it consists of looking at factors that are within your control and those that are not.

Stage one: the big picture and assumptions

The first stage of the process is to re-establish your starting point: what are my financial goals and have they changed? Your personal goals probably do not change often, but they might in life cases such as marriage, having children, death, inheritance, retirement, a new job, a new location, or a new business. When something major changes in life, your assumptions should be revisited because something may not be true or important any longer.

The financial checkup is also a great opportunity to revisit the assumptions in your original plan. One way to do this is to compare the results with what you hoped for. If your goals are being accomplished very quickly and easily, maybe the assumptions are too conservative. If the goals are not being accomplished as quickly as expected, the assumptions may be too aggressive. Once you have this information, you can move to stage two to examine which details need to be adjusted.

If your goals are on target, but there is growing anxiety or fear about your money, this is where the comfort level comes in. Emotions change over time, and financial plans can be revised for this reason. Emotions feed into decision-making and if dominates your mindset, decisions may be made poorly.

Circling back to the original reason you made the plan in the first place and what you want to accomplish is important to “ground” these emotions and provide clarity over time. If emotions are volatile, the plan should be designed to create the most comfort and be actionable in as many emotional states as possible. In other words, the plan should feel good. Any parts of your plan that don’t feel good should have good reasons for the discomfort.

Stage two: details

After you have discerned your goals and assumptions, it’s time to work out the details. There are factors within your control and those that are not.

Calculations you make can include:

  • What return was made last year?

  • What is our portfolio worth?

  • Is our debt level as we expected?

  • Is our budget on track?

  • Have we saved as much as we had hoped?

  • Do we have the things we wanted to buy over the past year?

If you have gone through the goals and assumptions in stage one, the areas that vary from what you want should be easily visible. When you notice a detail that is different than what you planned, what is the explanation? Should anything be done about it? Are there any details that have come up that were not considered to date? Now is the time to make the adjustments.

What are the odds of something in the future going wrong?

This is another way of saying: what are my risks and how likely is it that something unexpected may happen? Items that are beyond your control represent risks: low market return, tax changes, inflation, investment fees, performance of certain sectors or countries, cash deposit rates, government intervention, and one-time events like natural disasters, wars, and recessions.

Ask yourself if these things are permanent. Do they warrant a change in your calculations? Most of the time, the answer is no. Sometimes, though, there are items with indefinite duration, like a higher tax rate, higher investment fees, and higher trading fees. These may be items worth looking at in terms of adjusting your expected outcome.

If your plan is not on track, but the reasons why are justified, it may only be a matter of time for the goals to materialize. One the other hand, your plan might need tweaking if you can’t find reasons for your plan to have moved off track.

The mid-year financial checkup is a good opportunity to step back and take a look at what you have achieved in your financial plan and what you would like to achieve.