Friday, October 2, 2009

Review Your Third-Quarter Financial Picture

Saving Money Tip #193 - Review Your 3rd Quarter Finances. We’re three-quarters of the way through the year! It’s that time of year again to review your finances. I advocate not looking over your finances every chance you get. That leads to temptation to move money around if some investments are doing poorly. Personally, I think even once per month is a bit too often. I think twice per year is an adequate number of times you should look at it – once mid-year and once at year-end. At mid-year, you get a chance to evaluate what you have set up at the beginning of the year to see if things are progressing the way you had anticipated. Or if your allocations are out of whack, it gives you a chance to adjust them (generally, changing the percentage of your money that is in low-risk investments versus high-risk to be more in-line with your goals). Making allocation changes more often than that and I think you are reacting to short-term market fluctuations. Having said that, I think a check each quarter is the perfect frequency to do a review on your finances.

Since it is the end of the third quarter, it is a good idea to take a look at how things are moving along this late in the game so you can try to make any last-minute changes in order to reach some year-end goals you may have set for yourself. At this late date, you may want to wait until year-end to make any adjustments to allocations. But suppose you were hoping to save $10,000 toward a new house and you only have $3,000 saved to date, then it is time to get your butt in gear and make some changes to improve your savings before year-end. Or maybe you have already reached some of your goals and aren’t aware of it until you check your finances. This may free up some money for you to save somewhere else or to give yourself a well-deserved treat. Lastly, open season is often in November at many companies, and looking over your finances now will guide you in thinking about any changes you need to make in that area of your finances.

Remember, your quarterly checks on your finances are supposed to be tools to see how well you are meeting the goals you set at the beginning of the year. Unless some major life changes have occurred, you need not set new goals or make any drastic changes to the ones you have. Just a simple check of where you are and how to reach your goals by year-end are all you need.

In Real Life (IRL) – In the past year I have been pretty methodical about checking our finances on March 31, June 30, September 30, and December 31. When my husband and I were both employed full-time and there was more money floating around (and fewer expenses) I wasn’t as precise. But now, with each dollar that we are making having a specific use waiting for it, I want to make sure we are doing things the best way we can.

Having said all that, I calculated our net worth last night with updated figures on all of our investments. And I am pleased to report that in spite of the all of the market downturn this country has taken in the past two years, things are looking up. As a conservative investor, I did not take as big of a hit as some others who are more heavily invested in the stock market or invested in higher-risk mutual funds, but make no mistake about it, we still took some hits. Here is an example: I have a fairly risky mutual fund account that I opened many years ago in an IRA for retirement. In mid-year 2008, it was worth $14,000. At year-end 2008, it was worth under $10,000 for about a 30% decrease in value in six months’ time. I haven’t done anything with that account – didn’t add any money to it or take any out. Instead I checked it quarterly this year and watched it climb its way back up. At the end of third-quarter, the same account is now worth over $12,000 – gaining 20% in the first 9 months of the year. For those people who are checking their accounts monthly, weekly, or even daily, I’m sure many would have been tempted to take some of that money out to put in a “safer” account. By checking it only quarterly, I wasn’t tempted. And I told myself, that it doesn’t matter how well this long-term investment (won’t be using this money for 20 years or more) is doing this year. By waiting patiently, I have seen it climb part-way back up to its original value. And as they say on some flood clean-up commercials around here, “It’s like it never even happened” (the huge market drop in this case). Most of my other accounts have mimicked what that account did. And other than our condo in Florida, which surely lost value, most of our other investments – even our house - have climbed back up.

We still have some goals to meet by year-end, some of which we may not make. But after looking over our third-quarter finances and having a discussion with my husband a few weeks ago about our spending in the last quarter of the year, we have made a few changes, cut a few things out, and are generally pretty happy at where we stand. How is everyone else doing meeting their goals? If you need to find some ways to save some money to meet those goals, check out Frugal Fridays.

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