Finance Friday: Conducting a Financial Review

Happy Friday! Look at me posting 2 "Finance Friday" posts in the first month of the year! I was hoping for one post/quarter but I'm exceeding that goal for the first quarter! The wheels might fall off quickly, though, so we'll see if I can keep this up.

I talked about our 2018 spending in my last Finance Friday post and today I'm going to talk about the financial review that Phil and I just conducted. We try to do these about twice a year. We always do one at the beginning of the year in preparation for tax season. When Phil and I got married, we decided to combine our finances because it just seemed easiest. That said, we still have a lot of individual saving, retirement, and investment accounts so it's necessary for us to sit down on a regular basis to review things. Regardless of whether you are single or married, I think a financial review is an important thing to do on a regular basis so you are being mindful about your financial goals! Here's what our process looks like.

How?

Even though I use mint.com to keep track of our spending, Phil prefers to keep our 'financial review' data in an excel spreadsheet. We are both excel geeks so this makes sense.

What?  

For our review, he updates the balances of all of our accounts such as savings, 401ks, IRAs, investments, health savings accounts, etc. He also updates the balance of our mortgage which is the only debt we have between us. We use credit cards to take advantage of points but we pay the balances off each month. I used to have a sickening amount of student loan debt thanks to grad school but I worked hard to pay that off early in my 30s. I mention that because I don't want to come off as "being holier than thou" when it comes to finances.

Why?

Gathering the data can be the pesky part of the process but the important part of a financial review is what you actually do with the data. This is why some people opt to do their financial review with a financial advisor. Phil and I have opted to not work with an advisor because we feel like we have more-than-adequate knowledge between the two of us since are both CFA charterholders.

The most important question to ask is:

- What is your goal? This question will drive all the other questions you will ask yourself. In our case, we are hoping/planning to make a down payment on a home - hopefully this year! Besides that, we want to make sure we have enough saved for retirement, that our retirement accounts are properly invested, and we want to save for the expense of Paul's college education. Additionally, I would love to retire early - like in my 50s! So we need to save, save, save to make that a reality!

For others, the goal might be to pay down debt, establish emergency savings, save for a down payment for a home, increase retirement savings, etc.

Once you've established your big goals, more questions will follow that will help you accomplish that goal. For us, our follow-up questions are:

- Do we need to make changes to the allocations of our retirement accounts (i.e. the balance between equity and bond mutual funds/ETFs)?
- Do we have the right amount of money in savings or should we move some of that into an investment account?
- What should we do with the bonuses we will receive this spring (Phil and I are fortunate to work in industries with bonus payments) - should we put them in savings? Invest them? Pay down our mortgage? When making this decision we consider the interest rate of our mortgage compared to what we could earn in an investment account.
- When and how much will be contribute to Paul's 529 plan (a 529 plan is a tax-advantaged college savings account)?

After this financial review, we didn't make any changes because we need a lot of financial flexibility (i.e. we are keeping more money in savings than we normally would) since we hope to buy a house this year. Once we find a house we'll finally be able to make some substantial changes.

In closing I will say that part of me feels a little bit uncomfortable even talking about our financial review process because I know that our financial situation is different than a lot of people. That said, I would say we are probably more frugal than the average couple so our frugality coupled with working in a well-compensated industry has resulted in financial stability. However, we also work in a very volatile industry so we have to be really mindful about saving enough in case one or both of us loses our job at some point. But that said, I recognize that we are very lucky to be in the position we are in. But it hasn't come easily - we've worked really hard to advance our careers and have been really mindful about what we do with our money.

This openness about financial decisions is something we are going to be mindful of as Paul gets older. We feel that our parents did a really good job preparing us to manage our finances. We then built upon the basic knowledge they gave us about the importance of savings and living within our means. That's something we really want to instill in Paul.

Do you do a financial review? Is there a financial goal you are working towards?