3 Big Reasons Why You Need to Do a Mid-Year Financial Review

Last year’s taxes are officially filed. You’re more than halfway through the current year.

How are you doing with your finances?

If you are like most people, you really aren’t sure.

Now is a great time to do a mid-year financial review. You’re far enough into the year to see how your financial activities are trending, but you’re also early enough into the year to make adjustments if needed moving forward.

Note: A financial review is just as important for your business as it is for your personal finances – perhaps even more so.

Here are three important reasons why you need to do a mid-year financial review.

1. Analyze Your Cashflow.

“Making more money will not solve your problems if cash flow management is your problem.” ~Robert Kiyosaki

If you’ve followed me for a while, you know I’m a huge fan of budgeting. If you aren’t intentional in telling your dollars where to go they will most certainly slip away from you. My wife and I still use Quicken to manage our personal budget (and we love it!) – recording every single transaction that we make through the year and putting them in appropriate categories.

Just setting up a budget in advance and tracking your spending is only half the battle. You need to occasionally review your spending to see how it aligns with the budget you decided upon. We generally check on our budget monthly, but we also perform a larger, more formal, financial review twice a year. And that’s what I’m talking about today.

Cash flow questions to consider:

• Are you over budget in any of your categories?
• Perhaps you need to move money from a few of your under-spent budget categories to balance out overages?
• Are all of your expenses estimated appropriately?
• Is your plan still on track to fund the upcoming goals you have for this year?
• Are you on track still for your longer-term goals also?

These are great questions to ask yourself, or each other if you’re in a relationship (or have business partners), to help determine how you’re doing so far this year. Based on those discussions, and reviewing the numbers, decide if any adjustments are needed moving forward.

If you’d like help with your cash flow, consider working with a fee-only financial advisor for your personal finances or a value growth advisor for your business financials. Cash flow is an important topic personally AND professionally.

2. Double-Check Your Goals.

“If you don’t know where you are going, you will probably end up somewhere else.” ~Lawrence J. Peter

Speaking of goals. Don’t forget Christmas is going to happen in December this year. Yes, just like always, but it’s amazing how many of us forget about that rather expensive holiday until it’s right upon us.

It’s not just Christmas though. Do you still have travel or vacation plans for this year? If so, have you properly budgeted and saved for those expenses? Thanksgiving is also coming up just before Christmas. Will you be entertaining people, which might justify the need for a larger budget during November?

If you’re a business owner, have you saved an appropriate amount for (and in most cases paid) your taxes? Do you have seasonal fluctuations in your business that might require purchasing additional inventory for the holidays? If so, are you financially prepared to make that short-term investment?

Don’t forget about the big stuff!

Consider if you have any larger goals that need to be discussed also. A few questions to consider:

• Is your current car starting to get run down to the point where you may need a new one soon?
• Might there be something at the house – air conditioning unit, paint, carpet, or any other number of things – that will need to be taken care of still this year?
• Is there a piece of equipment at work that will need to be replaced soon?
• Are you getting to the point with your business growth that you will need to increase your staffing soon?

Spend time thinking about these upcoming goals and expenses to make sure you are properly prepared to handle them when needed. You don’t want to find yourself in a situation where you need to spend a large amount of money in a short period of time for something you haven’t planned for.

A mid-year financial review is a great opportunity to think through these topics!

3. Check Your Portfolio.

“When it comes to investing, there is no such thing as a one-size-fits-all portfolio.” ~Barry Ritholtz

If you are working with a financial advisor, they are probably monitoring your investments for you. This includes not just checking on how the investments are performing but also making sure that your portfolio remains aligned to your personal situation and goals.

If you aren’t working with a financial advisor, you should be doing this yourself.

• When is the last time you looked at your portfolio allocations?
• Have the allocation percentages drifted from what you initially intended?
• Has the risk in your portfolio increased beyond what you were comfortable with?
• Has the expected return changed from your original expectations?

Also, do you have any opportunities for tax-loss harvesting within your taxable investment accounts? It’s possible that you have losses within your account that can be harvested via a rebalance. In many cases, harvesting those losses can reduce your taxable income by several thousand dollars. In fact, you can save money on your income taxes by harvesting losses even if you don’t have any gains to report.

Planning for special circumstances

Here in 2021, a lot of people have experienced reduced income because of the COVID-19 pandemic. If you are one of the people who’ve been impacted and you expect a lower income this year, there might be special planning opportunities for you.

If your income has dropped low enough to put you in a lower tax bracket, you might want to consider tax-gain harvesting. While tax-loss harvesting will save you on your taxes this year, tax-gain harvesting will save you on taxes in future years.

Do you have an opportunity to realize gains at a lower tax bracket this year, which would save yourself money in taxes over the long term?

Your business is a valuable asset!

Note: Your business is an investment and you should check on its value* also.

• Is your growth trending at the rate you expect to achieve your goals?
• What percentage of your overall investment portfolio is tied up in your business?
• Would it make sense to “take some money off the table” in regards to your business?
• Are there strategy adjustments needed to help accelerate the value of your business?

* If you don’t know how much your business is worth and would like a free estimate, just schedule a chat and I’ll explain how to get a free value report.

Do It While There is Still Time to Adjust.

Performing regular financial reviews helps you keep your finger on the pulse of your finances, whether personal or business-related. If you aren’t doing financial reviews you might be headed in a dangerous direction without even knowing it.

It doesn’t take a lot of time, but there’s a tremendous amount of benefit.

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Wishing you success in building your value, personally and professionally!