Reviewing your finances yearly

The importance of looking forward AND back

Michael Carlin, AIF, WMS

As we approach the holiday season, this is the ideal time to reflect on your 2017 financial year as well as creating a focus for your financial future starting in 2018. We want to start the dialogue about how you performed this year so we can gain a greater understanding of what needs to happen for your financial life in the year ahead. The best financial advice that I can give you is it’s always best to start early and plan often. This article is going to delve into some of the areas that we’re going to ask you to pay special attention to, and we’re also going to suggest other areas to review to help better improve your financial life.

Reexamine your cash flow

This is the most important step. Ultimately, what I want for you is to manage your own personal income and expenses the same way any well-run business would manage its own finances. The first place that we need to go in order to gain a greater understanding is looking at what has actually come in the door in the form of income from all sources and couple that with a review of what has gone out the door in the form of expenses. Hopefully, you do a lot of online banking and will be able to extract this information quickly and easily. Better yet, you might even use an online budgeting tool like Quicken or even a homemade Excel spreadsheet. At some point, I need you to have all of this information in one file format so that you can understand the difference between your income and your expenses.

Ultimately, what I want you to be able to tell is if you were able to save and how much so you can start to figure out how you can save more in the future. When I say saving, I don’t mean reducing your lifestyle by cutting out a cup of coffee each week or bringing a bagged lunch to work a couple of times a week so that you can save a few hundred dollars next year. I am talking about a major lifestyle review: the type of home you live in, the type of car you drive, etc. Looking at these types of items will give us a better idea of whether you’re truly living within your budget. 

Bottom line: I want you to be able to save more than 10%, hopefully closer to 20%, of your total income. Those savings can come in the form of adding to your checking account, saving in your company retirement plan or saving in an online investment account.

Review your investment performance

During the month of October, we had what is referred to as quote unquote The Perfect Week on Wall Street, from October 16 to October 20. During those five days, the market made a new high five days in a row – Monday through Friday – for the first time since 1998. That’s almost two decades!  In fact, the market hasn’t dropped 5% since June of 2016, and this is one of the longest streaks that the market hasn’t gone down since 1996. So, no matter how you slice it, the market has been performing quite well this year.

The purpose of this review is not to discuss whether or not the market has enough energy to move to even newer highs. Rather, it is to take stock of how you are performing to see if you are allocated correctly. 

Here is what I expect you to see: your long term retirement accounts should be up quite a great deal this year, and I want you to reflect on whether or not you would like to reduce some risk or reallocate your investments given how the market has performed. Too often, people hear and see that the market is going up and fail to take time to review their investment portfolio. As a result, years and decades can go by without properly reallocating your investments.

It’s hard when new clients come into our office and ask us to review their existing investment portfolios when they have been ignored. Too often we see people coming in that haven’t looked at their investment accounts that have captured little to no upside of this tremendous stock market run we have been on these past 8 or 9 years. Those catastrophic financial mistakes can be avoided if you spend the time once or twice a year to review your investments and make sure you’re on target.

Big picture: I expect to see your account balance rising. If it hasn’t risen significantly this year, you need to seek out to find a professional to understand why this hasn’t been going up with the rest of the market.

Review your plan

Hopefully, this step jogs your memory that you need to review your plan. Or, I hope it helps you realize that you need to create your long-term financial plan. I expect your financial plan to incorporate all aspects of your income, expenses and savings as well as inflation, taxes, real estate, life insurance, disability insurance and even long-term care insurance in one cohesive plan so you can see your entire financial life come together. You may have read that list and said that’s a lot of stuff. I understand that, but that is what a comprehensive financial plan entails. It creates a working model of all financial components mapped out over a lifetime. So, take the opportunity this season – before the end of the year – to review your existing plan to make sure that you are on target with your investing and savings.

While you’re going through your plan, look to make sure that you have your important documents saved along with it as most financial planning software tools allow you to save wills, trusts, copies of your passport, deeds, the title of your car, etc. in an electronic envelope online. Use this time as your opportunity to make sure this aspect of your financial house is in order.

On the right track

In conclusion, following these three steps this time of year and making necessary changes in order to update your financial life is a great first step to helping you begin to secure your long-term financial viability.  We encourage you to use the tools that you currently have in place or take this time to go out and get those planning tools so you can manage your finances. In the end, the one person who is ultimately responsible for your success or failure is you, so take the time to make reviewing your financial life a priority.

Michael Carlin, AIF, WMS, is the President and Founder of Henry+Horne Wealth Management. He can be reached at (480) 483-3489 or MichaelC@hh-wm.com.

Securities offered through Independent Financial Group (“IFG”), member FINRA/SIPC. Advisory services offered through Wealth Management, LCC d/b/a Henry+Horne Wealth Management (“HHWM”), a registered investment advisor. HHWM and IFG are separate and unrelated entities. Henry+Horne and Henry+Horne Wealth Management LLC are separate entities.

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