It’s been quite the year – I don’t think any of us could have predicted the global pandemic and the effect it would have on our lives, jobs, relationships, and finances.
While it has been trying for many of us, I hope that you will have the chance to slow down during the holidays, catch some much needed break to focus on your health and the people who matter to you, and reflect on the past few months as well as the upcoming year.
There is no better time to do a reset on your money mindset and get refreshed on your financial strategy to support your life goals. I always do a retrospective – I think about the goals I’ve reached, the highs during the year, as well as the lows. Part of this involves doing a financial review of my year, as well as assessing any changes I may need to make. I encourage you all to do a review of your own finances and assess whether you are on track to building the life that you want to live:
ASSESS YOUR NET WORTH
If you have not already, build an understanding of your current financial health.
Compile and list out all of your assets, including your cash accounts & cash equivalent accounts, investment accounts, business assets, and other investments such as real estate, art, and jewelry. Do the same with all of your liabilities. Add them up and determine your net worth with the simple formula:
Net worth = Assets – Liabilities
An easier way to see a snapshot of your net worth, including the breakdown of asset and liabilities accounts, is through the Personal Capital dashboard. All you have to do when you first sign up for an account is to link all of your accounts. Afterward, all of your account balances will sync and update automatically when you log on. You can easily check up on your financial health with a click of a button.
I have been using Personal Capital for over five years and highly recommend using it to do periodic check ins on your net worth.
REVIEW YOUR INVESTMENT ALLOCATION
Often times, we don’t know our true risk tolerance until we are tested by a downturn. In a period of a long bull market, strong employment, and a rosy economic outlook, we may overestimate our risk appetite since we’ve mostly seen our invested assets trend up and to the left. For some younger folks, the pandemic was the first time that they risk tolerance was truly tested.
Review your current investments to make sure that you are comfortable with the allocation and that it is in line with your goals and lifestyle. This can change and evolve as you get older or as you go through certain life events.
If you find that your investments have deviated off course from your targeted allocation, you may also need to rebalance.
TAKE ADVANTAGE OF YOUR EMPLOYER SPONSORED HEALTH BENEFITS
Health is wealth!
Before the end of your benefit plan year (commonly the end of the calendar year), make sure that you have taken advantaged of all your covered benefits – go in for your annual physical, check that you have had all your allotted dental cleanings, and don’t forget your optometric check up as well.
If you contribute to an FSA account, don’t forget to use up your funds on FSA approved expenses within the plan year. Otherwise, you will lose out on any remaining money. If you need any ideas on how to spend your FSA contributions, refer to this post here.
REVIEW YOUR SPENDING
When you review and reflect upon your purchases, you can learn a lot about your values.
I like to go through an overview of my annual spending and highlight my favorite purchases and articulate about why I loved them: maybe they saved me a lot of time or made a manual task much easier. Perhaps I use something regularly and find great value in it. Or maybe it just brought me a lot of happiness and joy.
The point of money is to be able to build the life you want and not to clutter it with things or experiences that are meaningless to you. What you find useful, time-saving, or joy-inducing can be completely different from someone else. So doing a review of your spending and identifying the highlights can help clarify that for you.
UPDATE YOUR BUDGET FOR THE NEW YEAR
After reviewing your spending, you may discover awesome purchases, impulse purchases that you regret, and the whole spectrum in between. You may realize that some types of spending add absolutely nothing to your life, and you can easily go without them. On the flip side, you may also discover spending in areas that really enhance your life.
Your spending values will likely evolve throughout your life, and so this can be an iterative process. This is why it can be helpful to do an annual spending review, followed by an update to your budgeting based on what you discover.
Change in spending plans can also be brought about with unexpected events like the pandemic. For the upcoming months, I expect to spend more on groceries because my workplace provided meals everyday. I also expect to spend a lot less on travel, in person fitness classes, and tickets to concerts and performing arts events.
ASSESS YOUR CURRENT LIVING SITUATION
I’ve known many people who have made major moves in light of the pandemic.
When their companies announced that they would be working remotely for the foreseeable future, several have traded their pricy San Francisco apartments to move back in with their parents. They have decided that since most of the benefits of big city living – such as the bustling nightlife, restaurant scene, public transportation, and social activities – no longer exist as they have before, the astronomical price tag of living there was no longer worth it to them. Although living with parents may not be the ideal setup for everyone, it does have many financial benefits while providing quality family time.
I also have several friends who have favorably renegotiated their rent with their landlord, bringing down their housing costs by several hundred. Some have decided to take advantage of their company’s blessing of remote work and have moved to a different part of the country, most of which have a lower cost of living than their former home.
If you want to test out living in another city, and your company allows for remote work, it may be a chance for you to plan out a change in your living situation.
EVALUATE AND DESIGN THINK YOUR LIFE
It’s easy to get stuck in our current situation, even if it’s not serving us. Things that are at rest will stay at rest unless acted upon by an outside force.
The point of building up your financial framework is so that it can support the life that you want to live. As our values and goals can evolve and change throughout our lives, it is a good idea to review them and make sure that we are still on the same page as the version of us from the previous year.
Personally, I know that I now have a greater sense of urgency to go ahead and do the things that I’ve always wanted to do, instead of letting them stay on the back burner and waiting for the “ideal” moment. The pandemic has shown us that nothing is guaranteed, relationships and connection are important, and more than ever, we should be develop a strong compass for what brings us joy in our lives and how to reach our designed life.