In the blink of an eye, the first few months of 2019 have passed us by. The start of the new year was likely an impetus for you to review your finances and set some goals for 2019.
The question is: how are you doing financially today?
As we roll into the second quarter of the year, it’s the best time to carve out an hour or two in your schedule in order to review your finances. After all, all businesses conduct a quarterly review of their accounts so why shouldn’t you adopt this practice for your personal finances as well?
Here are three good reasons why a quarterly financial review is beneficial for you.
It will help you spot patterns in your finances
Most of us view our finances in terms of a monthly cycle. We get paid every month, we pay bills every month, and so we often structure our budget as a monthly one as well.
Naturally, having a monthly overview of your finances is very helpful and it should be a part of everyone’s financial plan.
What a quarterly review will bring is a broader overview that can reveal patterns in your spending and saving.
After all, as much as we try to stabilise our monthly expenses, there are instances where we might have a more expensive month. A quarterly view will provide a more holistic picture of your finances.
It lets you see if you’re on track to reach your financial goals
With data from three months of finances, it’s easier for you to assess your progress towards your financial goals.
Let’s say that this year, you have a goal of putting $10,000 towards your savings. With the first quarter of the year gone, have you managed to put aside $2,500 so far? If yes, that’s awesome!
And if not, what can you do better in the next few months to get yourself back on track? Perhaps your expenses in February were higher than expected, and you can look at ways to reduce your spending so that you can ramp up your savings and make up the difference.
Whatever your personal financial goals, a regular review lets you know how you’re doing — what you’ve achieved, what you can do better, and what action you need to take to get to that end goal.
It allows you to reevaluate your money goals
A quarterly review is not just a chance to reflect on the last three months; it’s also a good time to look towards the future.
Are the financial goals you set at the beginning of the year still relevant? Should they be adjusted in any way? Do you have any new financial priorities or concerns that you should account for?
Ask yourself if your financial plan for the next three months needs to be adjusted. Can you save more? Should you increase your life insurance coverage? Are there any big expenses that you should factor into your budget?
Applying a little foresight and planning for the next quarter will ensure that you stay on track to reach your yearly financial goals.
What Should You Review?
Now that you know the importance of a quarterly financial review, you’re probably thinking what exactly it entails.
Here are six must-review items to include in a basic quarterly financial review.
1. Your Monthly Expenses
Is your spending under control? Take a moment to analyse your monthly expenses. What are your fixed expenses and what are the variable ones?
You may think that your fixed expenses are exactly that: fixed. But that may not be strictly true.
Take for instance your electricity and water bill. Consider if you’re consuming those resources too carelessly. Are there any electricity and water-saving habits you could adopt? A small change like putting your air-conditioning on a timer at night can help cut down electricity costs.
What about your variable expenses? There’s likely to be some room for savings there.
Perhaps you can eat out less and do more home cooking. Or maybe you can cancel your cable television subscription and just stick with Netflix for entertainment.
Look at the breakdown of your monthly expenses to get a clear idea of how exactly you’re spending your money.
2. Your Insurance Coverage
Do you know what insurance policies you have and how much you’re paying for them? Every quarter is a good time to review your policies.
You should first review your life insurance coverage. If you have a financial advisor, it’s a good idea to conduct the review with your advisor — Afterall, you should leverage their professional advice and experience.
If you’re doing it on your own, there are two simple things to do.
First, check that you’re sufficiently covered. Has anything changed in the past quarter that necessitates increased life insurance coverage?
Second, check how much you’re paying for your policies. Have your premium payments gone through and are your existing policies still in force and active? Do you want to save some money and pay for your policies on an annual basis instead of monthly?
You should also review all your other insurance plans. If you’re a homeowner, check that your home insurance is still active. For frequent travelers, you may want to consider switching to an annual travel plan instead of single trip policies. Is your health insurance still in force?
Reviewing your insurance coverage ensures that your financial future is protected.
3. Your Savings
Ideally, you should have set a savings goal at the beginning of the year. The quarterly mark is the time to check if you’re on your way to meeting that goal.
At the end of the first quarter, you should have 25% of your savings goals already accumulated.
What if you’re not on track? Look back at the last three months and find out why. And then also figure out if you can catch up by saving more in the next quarter.
If that’s not possible, then it may be time to revise your yearly savings goal to something that is attainable.
4. Your Investments
Any savvy investor will tell you that it’s smart to keep an eye on your investments. Every quarter is a timely milestone to check on how your investments are doing, and if any action is needed.
Is it time to liquidate your investments if you’ve met your targets? Or should you allocate more money into investing if your current portfolio is generating good returns?
If your investments are not doing as well as you expected, it may be time to consider rebalancing your portfolio. Are your investments diversified enough?
You should also look into the fees that you’re paying for your investments. Fees can eat into your returns, and this can be magnified when the market isn’t doing well.
A quarterly review of your investments is a time to reassess and make decisions that can affect both your short and long-term investments.
That said, do remember that investments are usually intended for the long term so don’t make any hasty decisions based on the market performance in one quarter. If you have a long-time horizon for your investments, you can ride the waves of the market and still come out on top at the end of it.
5. Your Credit/Debt
Another important item to review is how you’re managing credit and debt. Look back at your credit card statements and assess if you’re spending too much on credit. Have you been paying your bills in full each month?
Give yourself a pat on the back if you’ve been managing your credit card spending well and paying off all your balances every month.
If you are experiencing some financial strain and finding it difficult to clear your monthly credit balance, it’s time to take stock of your debt and find solutions to manage it. Based on your current budget, how soon can you completely clear your debts? Is it possible to increase your monthly debt repayment amount?
Reviewing your credit and debt every quarter will give you a better handle on debt management and you can be more proactive and effective about paying down your debt.
6. Your Yearly Financial Goals
Lastly, end your review by referring back to the goals you set at the beginning of 2019. Check in and see how much you’ve progressed with each of them. Does anything need to be changed or adjusted now that you’ve gone through the first three months?
If you’re doing well, are you able to cross off any short-term goals that you’ve already met? How about adding new goals to challenge yourself?
And don’t forget to reward yourself for doing so well in Q1!
If you haven’t done a quarterly review before, now’s the time to start. The tips above will help you get an overview of your finances for 2019 so far and keep you on the road to achieving your financial goals, no matter how big or small.