Have you ever wondered when is the right time to assess your financial situation? Although any time you take control of your finances is the right time, unfortunately unless you determine a specific time, it just becomes one of those jobs that never quite makes the transition from your ‘to do’ to your ‘done’ list!
You probably use the months of Elul and Tishrei to assess your life and define your spiritual goals. Each Rosh HaShana then turns into a yardstick according to which you can measure your growth, compared to the previous year. In a similar way, the end of the calendar year should become a natural marker for the more material side of your life, when you reassess your comprehensive financial plan.
If you already have a solid financial plan, use this time to evaluate if it’s working effectively. Your financial situation is not static, and the financial markets are ever-changing. When you first set up your plan, constructed your budget, and prioritized your financial needs, you were reacting to your financial circumstances and outlook at that particular time. However, as your personal situation changes, your financial requirements must accommodate your new reality – whether it’s small differences such as your children’s extra-curricular activities or tuition fees, or life-changing events such as bereavement or divorce. Your financial plan must be re-evaluated regularly in order to match your current reality.
There are several elements that you need to think about in order to ensure that you have an effective financial plan.
- Current financial health. Are your assets growing and your liabilities shrinking as you pay off debt, or are you heading in the reverse direction? Are your retirement savings reaching the amount you decided upon? Are you over/under-insured? Are your current financial difficulties systemic, or due to some extreme one-time event? Do you understand your employee benefits, and are you maximizing your gains? These are among the many questions that need to be answered to assess your current financial health.
- Tax planning. Although your tax return only needs to be completed by March or April, financial changes should have been made before the end of the year so that you can reap the benefit and lessen your exposure to higher taxation. Before the end of every year, ensure that you consult your tax planning professional regarding any decisions that need to be made.
- Investment evaluation. Obviously this can be done any time, but it must be done on a consistent basis at regular intervals. The end of the year is a natural time as annual investment reports are readily available, making it so much easier to chart your investments’ progress. Are your investments above inflation levels? Is your portfolio sufficiently diversified so that you are protected against market fluctuations? Does your portfolio risk level reflect your current risk preferences? Do you need to rebalance your investments and sell off better-performing securities which now represent a much larger percentage of your portfolio? Have you reassessed any ailing investments to ascertain their long-term viability? All these elements should be evaluated and adjusted at least once a year.
- Wills, trusts and health directives are all different and critical elements of your plan. You must keep your structures current, in order for them to remain effective. Any plan that doesn’t incorporate changes in personal circumstances quickly becomes irrelevant and pointless.
Once you have decided on your financial direction, use professionals to advise you. Experts such as lawyers, tax advisors and investment managers deal regularly with issues similar to yours. Ensure that you keep your chosen professionals up-to-date with any relevant changes, as their expertise will ultimately save you time and money.
There is a wealth of information in both printed press and cyberspace, ready for you to tap into. Update yourself and become knowledgeable about the current financial, legal and tax realities, in order to better understand and question what the professionals are saying. However, treat your financial knowledge the same way someone with a health issue would research their particular medical condition. Go armed with information to the specialist, but be careful about diagnosing and medicating yourself based on the knowledge gleaned from the media.
And finally, when you’re confident that you have a viable financial plan, educate your children about the various elements involved, so that they begin to understand financial responsibility. That way you’ll have made every effort to ensure your family’s continued financial good health. And the end of the year will become the beginning of the way forward.