A Mid-year Personal Finance Review

3 months ago JCprojectfreedom 0

We will usually do a medical health check up once a year to see how’s our body coping. Applying the same health check up concept to your financial health, it is imperative to do a regular Financial Check up to see whether we are on track to achieve our financial goals.

It is already 1st June! Half of the year has almost passed, it is time for a personal finance review. We will cover the most important factors for you to make sure you are on track to financial success.

Savings

Ideally, you should set your financial resolutions at the start of the year and by the middle of year, you will have a good gauge whether your savings rate is meeting the target savings for the year.

If you are falling short, then it is time to step up the saving rates to catch up for the rest of the year. If this is not viable, maybe you are being too ambitious or you are lacking in terms of discipline and have too much wants.

For instance, if your annual target is SGD 30,000 by end of the year, your monthly saving needs to be SGD 2,500. By mid year, you should achieve SGD 15,000. If you find you have only achieved SGD 10,000, there is a shortfall of SGD 5,000. Then your monthly saving from July onwards should be around SGD 3,333 for you to meet your target.

Emergency Fund

Everyone should have minimum 3 months worth of salary put aside as Emergency Fund. Alternatively, you can consider 3 months of household expenses instead of salary. My personal recommendation is to choose whichever is the higher amount. However some family may require a higher amount (say 6 months) as every family’s circumstances is unique.

Warchest

Warchest is defined as a sum used to start a business or invest in business/stocks/opportunity/distressed asset. Warchest is like your opportunistic fund. It can harness extraordinary return to compensate for the idle time when it is accumulating low interest rate from Fixed Deposit.

Recently, everyone seems to be saying “the sky is falling”. Maybe it is time to accumulate more of your savings into warchest to capture any opportunity to buy an asset. My personal recommendation is 10% of cash as warchest, I prefer to stay invested. Everyone’s risk tolerance level is different, stick to what makes you sleep peacefully at night. Remember, once you lose sleep over your investment, means this is beyond your risk tolerance level.

WHY are you investing?

What is your WHY when your invest? Is it for Growth aka Capital Gain? Is it for income? Is it to beat inflation? Is it for retirement? Is it to show your intellectual capabilities?

What is your investment time frame? Investment is supposed to be for the long term and it is never a get rich quick scheme. Maybe you prefer trading, your time frame is based on daily pips and you feel safe when you take out all our money by closing positions at the end of the day.

If you need to save for your wedding or buying your house in the next 1-2 years, you may need to consider lower risk investment such as cash fund or short term bond. The key is not to take risk and preserve the capital.

Your Credit/ Debt level

Have you ever bought a Personal Credit Report from Singapore Credit Bureau? At every month billing cycles for Credit Card, you need to have full awareness whether the amount is fully paid before the due date. Credit Card companies thrive from the compounding interest rate which is charged to the outstanding amount. This can snowball into a nasty surprise over a few months.

Your mid-year financial review should include debt management. Which is the highest interest debt? Which debt should I pay down first? Are you meeting your debt payment target? If not, maybe you will want to consider reducing savings and increase in debt repayment every month. If it is a good debt, you are using the debt to get a higher return elsewhere, you may consider not to pay down this debt.

Mortgages

For home owners, it is time to review your mortgage, reassess the value of your house to check if you can get a better financing plan to reduce interest payable.

Insurances

Your progress in life can render insurance coverage inadequate or maybe you need to “refinance” your insurance policies. Make it a habit to review your insurance portfolio to make sure you are adequately covered and not throwing too much money into insurance which will jeopardize your investment for retirement.

What’s installed for next 6 months?

You should set and adjust your financial goals at this half year milestone. Understand where you are and where you will like to end up for the next half of the year. You may even want to set your 5 years, 10 years, 15 years financial plan.

You should look into your saving rate. Consider 2 separate pots, the first one is your saving pot (warchest) and second one is emergency fund. Look at automating this saving process, channeling money into these pots every month when the salary comes in.

Start to use an app to keep track of your expenses if you are more tech savvy, I am still using an Excel spreadsheet while I know a friend who uses a notebook to record every expenditure.

It is time to engage an adviser to assist you to tailor an investment strategy, keeping you updated on market development, curtailing a financial plan for your personal goals.