It’s over three months into the new financial year, and time to take a moment to reflect. How many of us took the time to stop and review our financial positions and investment portfolios at year’s end? How many of us have even reviewed our position in the past 12 months?
Hopefully there’s a resounding number of people saying “I have” but I suspect there will be more than a few saying “not me” as well. We’d never think of skipping our annual WOF for the car, but many of us place a much lower priority on checking in on our finances. So, it’s time to check the brakes, make sure the headlights are working and be certain there is no rust creeping into your financial assets.
Whether you’re in the good camp and have done your annual financial review, or are in the not-so-good camp, here are some of the key check points on your financial position that you should be reviewing.
1. Has your situation changed?
Think back to this time last year. Have there been any changes to your personal situation? Things like house moves, relationship changes, changes to income streams, re-mortgaging, children etc.
It’s very rare that things stay static for long, so it’s important to re-evaluate your current financial strategies to ensure they suit your current situation and future goals. Remember to have a think about some of your own variables like time frame, tolerance for risk and income needs. You may need to look at your overall asset allocation and adjust your portfolio as and when things change.
2. Are your investments on track?
Look at the various investments you hold and check back in with your overall goals and objectives. Are the strategies working, how have they performed over the past 12 months and was this in line with your expectations?
Being brutally honest with yourself here is the best policy. If one of your investments is underperforming, don’t be afraid to ask the tough questions. Does that asset still have a valid part to play in your portfolio, or could your money be working harder elsewhere? Remember to make your assessment against the appropriate time frame for that asset class though – some assets can be more volatile than others in the short term but could reward patience over the long term.
3. Is your spending under control?
The other side of the equation, and an important one to review as it can have a major impact of achieving financial goals.
Having a clear picture of what you’re spending can not only be a real eye-opener, but it can be crucial in assessing whether your investment strategy is meeting your needs. Could you forgo a few discretionary expenditures and redirect this to your retirement savings to give them an extra boost? Once you reach retirement, how much you spend will also determine how long your savings pot can last – differences of $10,000 each year could make a huge difference in the long term.
4. Is your financial emergency plan in place?
Everyone should have a safety buffer in place for those unexpected life events, so be sure to have a think about whether you’re prepared.
Other than the customary easy-to- access slush fund that should be ready to go when the hot water tank needs replacing, you should be taking the time to review your insurance policies on a regular basis. Also, make sure you have a financial and medical power of attorney in place and that your will is up to date. Keeping an updated inventory of your financial assets can be a very useful exercise in case a power of attorney ever needs to step in.
5. Have you factored your family into your financial plan?
If you haven’t already, then at some stage you might want to assess whether you need to make allowances for family members in your plan.
It’s worth taking the time to consider whether you need to be making financial decisions that will allow you to offer assistance to parents, children or grandchildren. With the recent changes in lending restrictions on New Zealand property (not to mention the prices), a lot of parents are helping their Millennial children into the property market. Many also have ageing parents who can no longer live on their own or manage their own financial affairs.
Use your review as an opportunity to assess your family’s goals across the generations. It could help spark some of those more difficult family money conversations, and bring your family together to sort through vital matters such as estate planning, education savings and caregiving responsibilities.
So, on a wintry Sunday morning, put the jug on, get the paperwork out on the kitchen table and take the time to give your finances a clean bill of health for the year.