Financial pit stop
JESI BONDOC, RFP
A pit stop is a short pause we make during a long journey to eat, rest and refuel. In financial planning, making a financial pit stop is equally important as setting your yearly financial goals.
As we enter the second half of the year, I encourage you to take a financial pit stop. It’s the time of the year when you think and evaluate how far you have come in achieving the financial aspirations you set at the start of the year. It’s also the perfect time to assess and make the necessary adjustments to end the year financially better.
Here are four things you need to remember when taking a financial pit stop:
1. Review financial goals. Congratulations if you have a formal financial plan written at the start of the year. You are one step ahead of everyone. But frankly, most people don’t have one. If you’re one of them, this is the best time to write down a financial goal for yourself. It doesn’t need to be formal. Make it as simple as “I’d like to save P10,000 this year.” Having written goals helps us monitor progress. It also motivates us to take action.
2. Review emergency fund balance. Financial emergencies can come in all shapes and sizes. They usually happen when we least expect them like sudden job loss, medical emergencies or death in the family. All these bring emotional and financial burden. Having enough cash reserve will definitely help to weather financial storms.
Ideally, at least eight months worth of your expenses should be the size of your emergency fund. Now is the time to check your bank account if you’re on track to complete your emergency fund requirement.
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3. Review investment portfolio. Whether managing your own investments or paying someone to manage them for you, a periodic review of investment is necessary to gauge if investment allocations are off balance. Things to consider reviewing during a financial pit stop are:
– Stock positions hitting target prices. Don’t forget that the market is cyclical thus good times also come to a momentary end. If your investments reach their target prices, exercise prudence and learn when to get out and secure gain.
– Size of cash reserve in your portfolio. I’ve seen a lot of investment portfolios containing two main asset classes in their buckets–stocks and bonds. While this is a good mix, I prefer to have a certain size of cash reserve in my investment portfolio. For one, cash is a financial safety net in case current investments fall short and immediate liquidity is needed. Second, investment opportunities, like financial disasters, can arrive anytime. There should be enough cash reserve to take on a rewarding opportunity without flipping current investment positions.
4. Accounting for life changing events. Taking into account life changing events such as marriage, birth of child, job promotion, salary raise, etc. during a financial pit stop is important to ensure a clear and whole picture of one’s financial standing. Let’s say you have been promoted at the first quarter of the year and given a substantial salary raise. If you don’t account for that raise and fail to include it in your financial plan, it will be spent on things that don’t really matter. Extra earnings may be used to fast track achievement of your financial goals.
The execution of a financial plan can be daunting and exhausting at some point. We are trained to appreciate short term rather than long term. Thus, it’s crucial that we take a respite and do our financial pit stops to not only gauge where we are lacking but most importantly to monitor our progress and celebrate even the smallest accomplishment we have made.
Jesi Bondoc is a Registered Financial Planner of RFP Philippines. He is the Director of My Wealth MD and Partners, Inc. specializing in investment advisory. You can send your money questions at jj_bondoc@yahoo.com and they’ll be answered on his next article. For more info about Registered Financial Planner program, e-mail to info@rfp.ph or text <name><e-mail> <RFP> at 0917-9689774.
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