Financial health, like physical health, isn't a static state but rather a dynamic process that requires regular check-ups. Here we are, mid-year - the perfect time to assess your financial fitness and make necessary adjustments. Here are five essential tips to guide you through your mid-year financial check-up:
Assess Your Cash Flow Cash flow is the heartbeat of your finance. Understanding where your money is coming from and where it's going is crucial for financial health. This can help you identify any unnecessary expenditures and opportunities for savings. This is crucial to help you identify, First of all, do I have enough money to come in and cover the expenses? Secondly, what do I tend to spend money on and are there any surprises? Thirdly, If you do have excess cash flow, are they being put to work after emergency fund is properly funded? Practical Tip: Create a visual aid to understand your cash flow better. I love to use Sankey graph to clearly show how money is flowing but you don’t have to use this specific tool - a simple spreadsheet, or even just pen and paper would get the job done too. Assess Changes in Your Life and Reevaluate Your Goals Your financial planning should always reflect your current life situation and align with your evolving goals. If you've had significant life events such as a new job, marriage, or a baby, these should all be factored into your financial strategy. Ask yourself, how does these events impact your outlook on your life and how or if it changes your goals? It’s great way to ensure what you’re working towards aligns with where you are and where you want to be. Practical Tip: Revisit and adjust your budget, tax strategy, and insurance policies to match your evolving life circumstances. Reevaluate your financial goals and adjust your financial strategy accordingly. Review Your Investments A mid-year review of your investment portfolio allows you to ensure your investments still align with your financial goals and risk tolerance. How you invest should reflect your goals and risk appetite, so if you have identified significant changes in your life, it’s crucial to make sure you are invested in the most suitable way for your newly adjusted goals. Beyond reviewing the specific investments, it’s also a good time to review WHERE the money sits. The fancier term for this is called “Asset Allocation”. For example, if you want to save for long term, like retirement, it’s typically best to invest this money in designated accounts for retirement, such as 401(k), Solo 401(k), IRA, Roth IRA, SEP, etc. On the other hand, if you’re saving for something that needs a lot of flexibility depending how the future play out, it’s generally good to have something that can give you the flexibility without penalty such as a brokerage account. Practical Tip: Consider rebalancing your portfolio to maintain the desired asset allocation and diversification. If your goals or risk tolerance have changed, adjust your investment strategy accordingly. Tally your accounts and review whether how you use them aligns with the purposes of these accounts. If you are behind, try to fund more before the end of the year. Conclusion Check-up on your financial health can be easy if you do it with a set cadence at least once a year. The biggest benefit for this process is to inform you of how your finance is. That way, you have the clarity of “now” to make decisions for your future. It also sets intention and give your finance the deserved time and headspace. The key is to continually strive for alignment between your values, goals, spending habits, and investment choices. Cheers, Lei
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