One way to ensure you stick to your financial goals as time goes by is to review them regularly – at the beginning and in the middle of the year.
Doing this will help you know where you stand financially and help you stick to your goals and work towards achieving them.
Following these tips will make for an effective review.
1. Housekeeping the finances
Cash flow is the “blood flow” of your finances, so it must be kept in a positive and healthy state. Always keep track of the in- and outflow of money.
Look at your budget to make sure it is realistic. The mid-year review is the time to check credit card statements, bank statements and receipts, and identify spending in the early part of the year.
Spending can vary from month to month. Some months, more will be spent on things such as school supplies for the kids, car maintenance, festivities, celebrations and others.
Analyse spending patterns to gauge the expenses for the next half of the year and plan ahead to avoid getting into a bad cash flow position.
This is also a good time to organise and update your financial records. This includes keeping a good filing system of receipts for future tax filings, updating the list of assets and financial products and discarding the stacks of receipts kept for tax submission that are older than seven years.
2. Adjust as needed
In the current circumstances, sudden changes in life can occur. Job losses, pay cuts and income reduction are just a few.
In addition, how you perform your job can change. For instance, you start working from home, which would change the pattern of your expenses.
Split expenses into three categories:
- Fixed expenses, such as loan instalments, may be reduced due to the recent Overnight Policy Rate cut announced by Bank Negara Malaysia. Check this with the bank.
Also, if you had opted into the moratorium on loan repayments, you would not have had the expense of instalments during the grace period.
- Variable expenses are very likely to change during this period. More may be spent on some things and less on others.
Spending on petrol, for example, may be reduced while electricity and internet connectivity bills could have gone up.
- Discretionary expenses are for things people can live without, such as entertainment, travel, outdoor activities and gym subscriptions.
Dividing expenses into categories will help you adjust to your current circumstances.
For instance, if you lose your job, it would be prudent to reduce discretionary expenses so your emergency funding can sustain you for longer.
It is important to review your cash flow in order to adjust your budget according to the current situation and prioritise the things that are more important.
3. Keep track of progress
Now that you have an accurate picture of how much money there is and where it is going, the next step is to determine the gap between the current circumstances and where you want to be.
Are the assets growing as expected? How far away are your goals? Are they realistic given the current progress? If they are not, how should you close the gap and how quickly can this be achieved?
These are just some of the questions to ask when tracking your progress in order to keep spending in check and goals on track.
But what if progress is not as quick as expected? This is why a mid-year review is important.
It helps you identify how it got side-tracked and acknowledge the challenges and find ways to address them.
It might even be necessary to revise the goals to avoid getting bogged down by over-ambitious goals that paralyse you into inaction.
4. Schedule a mid-year review with a licensed financial planner
After determining your goals and laying out the strategy to achieve them, schedule a review with a licensed financial planner for a second opinion.
Conducting a mid-year review on your own can be daunting, what with the planning and unfamiliar financial documents.
A licensed financial planner can assist in putting your financial house in order, identifying your current financial status and helping map out the road to achieving your goals.
The roadmap would include strategies to ensure you remain strong and resilient financially, to close the gap between your current circumstances and where you want to be as well as strategies to ensure you attain your goals regardless of the economic climate.
In addition, the financial planner would look at your existing asset holdings and help identify suitable asset allocations to optimise and maximise returns as well as help you to actively manage your investments.