Staying on top of your finances is important all year round, but it’s especially crucial to do a mid-year financial review to see how you’re doing so far.
Ideally, a mid-year financial review is important to ensure that your funds are spent strategically and you’re not over or underspending at the end of the year.
Unfortunately, many of us fail to conduct regular financial reviews because the process is often time consuming. This doesn’t have to be the case.
Ask yourself these five questions to get a better sense of your financial situation and make sure you’re on track to reach your goals.
1. What were your financial goals at the beginning of the year, and how well have you stuck to them?
It’s important to start off the year with clear financial goals in mind. Whether you’re looking to save up for a big purchase, pay off debt, or simply build your emergency fund, setting specific goals will help you stay on track. Take a look back at your goals and see how well you’ve been doing so far.
Are you on track to reach them by the end of the year? If not, what can you do to get back on track?
2. Have your income and expenses changed since the beginning of the year?
Life can be unpredictable, and your income and expenses may have changed since you made your original budget. Take a look at your current situation and see if you need to make any adjustments to your budget.
Are you bringing in more money than you expected? Are your expenses higher than you thought they would be?
3. How much money do you have saved so far this year, and where is it invested/stashed away?
Saving money is key to reaching your financial goals. Make sure you know how much money you have saved up so far this year, and where it’s all going.
Are you keeping your emergency fund in a safe, accessible place? Are you investing in stocks or other retirement accounts?
4. Are there any big financial moves you’re considering in the second half of the year?
Big financial moves can include buying a house, starting a family, or returning to school. If you’re considering any of these things, it’s important to start planning now.
How will these moves impact your budget? Do you need to start saving more money? Are there any tax implications you need to be aware of?
5. What can you do to improve your financial situation in the second half of the year?
No matter how good or bad your financial situation may be, there’s always room for improvement. Take a look at your current situation and see what you can do to make it better.
Are you spending too much money on unnecessary things? Can you start investing in a retirement account? Are there any other changes you can make to improve your finances?
If your mid-year financial review revealed that things aren’t quite what you expected, don’t fret. This is a learning opportunity and there is solace in knowing what’s happening with your finances, even if it’s not what you expected. Use your learnings to pivot and decide how to best improve over the remaining months.
5 Steps to a Successful Mid-Year Financial Review
It’s never too late to get your finances in order. Even if you’re already six months into the year, it’s still worth taking a moment to do a mid-year financial review. This review will help you assess where you currently stand with your money and give you a plan of action for the rest of the year.
Here are five steps to take during your mid-year financial review:
1. Review your budget
The first step in any financial checkup is to review your budget. Take a look at your income and expenses for the first six months of the year and see where you can make adjustments. Pull out your bank statements, credit card bills, receipts, and any other financial documents.
If you find that you’re spending more than you’d like in a certain area, consider cutting back or finding ways to save. Determine how much money you need to live comfortably and allocate your funds accordingly. Make sure to include room in your budget for unexpected expenses and major life changes that may change your financial needs, such as the birth of a child, a marriage, or a job change.
By consistently reviewing and adjusting your budget, you will avoid falling into the spending trap and you will be proactive, taking the necessary steps to stay on top of your finances for the rest of the year.
To get started in budgeting, you can download my FREE budgeting templates or watch my budgeting videos on Pinay Investor YouTube Channel.
2. Evaluate your savings plan
The next step is to evaluate your savings plan. Are you on track to reach your savings goals for the year? If not, now is the time to make changes.
Financial experts recommend that savings comprise 10-20% of your income. However, it is possible to miss your savings goal occasionally. A mid-year review helps you evaluate your monthly expenses, so you can make necessary adjustments, and ensure that you make up for the lost savings.
Savings and Investments
You will want to review your contributions to accounts like GSIS if you work in the government, SSS if you work in a private company or you’re self-employed or an OFW member, and other personal savings or investment accounts if you are planning to catch up with your savings or retirement accounts.
Emergency Fund
One big lesson that the pandemic has taught us is to be more financially prepared for emergencies. The mid-year financial review is also an opportune time to be sure your rainy day fund is substantial enough to cover your essential expenses. The size of your emergency fund will vary depending on your income, monthly expenses, lifestyle, and dependents, but the rule of thumb is to put away at least three to six months worth of expenses. This way if an emergency happens again, you will be better able to weather the storm.
3. Assess your debt
It is worthwhile to assess all your debts in the middle of the year for an in-depth review. Take a look at your outstanding balances and see if you’re making progress toward paying them off. If your mid-year financial review leaves you with some extra money on hand, you can use this to repay your debt obligations. After you have listed every single outstanding debt, including credit card debt, mortgage, or personal loans, choose one debt to tackle first.
The Avalanche and Snow Ball approaches are two strategic methods that can help you get out of debt faster. The Avalanche method refers to tackling the debt that carries the highest interest rate, while the Snow Ball method involves getting rid of debt with the lowest balance and moving on to the next lowest to chip away at it.
Devise a plan to pay off your debt, being careful to at least pay the minimum on each. See if you can cut down some expenses or increase your income in any way so you spend more towards your outstanding debt. And remember, while paying down debt, it’s essential to stop using your credit cards or taking out additional loans so you don’t rack up more!
4. Review your investment portfolio
If you have investments, it’s also important to review your portfolio at the midway point of the year. How have your investments performed so far this year? You’ll want to confirm you’re still on track with your investment goals. Consider rebalancing your portfolio if it’s not being actively managed, and reassess your mix of assets — stocks, REITs, bonds, and cash — if your priorities have changed.
If you’re not happy with the results, consider making changes to your investment mix. This will help you ensure that your assets are properly diversified and that you’re on track to reach your financial goals.
5. Assess your networth
Although it feels like it is reserved for people with much “bigger money” and tons of investments than you have, it still applies to you.
Assessing your net worth will help you see where you stand financially and whether you’re making progress toward your goals. You have to know where you stand before you figure out how to move forward.
To calculate your net worth, subtract your total liabilities from your total assets. In other words, what you own minus what you owe. Be sure you are clear on what is actually an asset and a liability. Things that lose money over time could be considered expenses, not assets. If your net worth is negative, it’s time to take action and start working on increasing it.
Final Thoughts
While a mid-year financial review is important, it’s not the only time you should be evaluating your finances. You should also be doing a full financial review at least once a year. This review can help you catch any problems early and make sure that your finances are on track.
After you’ve reviewed your budget, savings, debt, and investments, it’s time to make a plan for the rest of the year. This plan should include specific steps that you’ll take to improve your financial situation.
If you find that you’re off track with your finances, don’t worry! There’s still time to make corrections. By following these five steps, you can get a good idea of where you stand financially and make any necessary adjustments to get yourself back on track.
So don’t wait — do a mid-year financial review today so you can ensure that you end the year on a strong footing.
Let me know which of these steps you usually take during your mid-year financial review in the comments!