Where Are You At? The Mid-Year Financial Gut Check.

The Mid Year Financial Gut Check.jpg

If our calendar year could be compared to a basketball game, we're at about half time. For those of you who don't know anything about basketball, the game is broken into two halves with half time in the middle. During half time both teams retreat to their locker rooms.

So, right now, we're in our half time. We're in the locker room taking a quick breather from running up and down the court like psychos who are obsessed with the meaninglessness of rules and a game. Too existential? Sorry.

The point is this: halftime is a chance to pause and reflect. What's the score? How is the other team playing? How are you playing? You probably went on the court with an objective. Maybe the objective is to win. Or maybe the object is to not lose by 30 points. Whatever the objective is, now is the time to take stock of the score, your performance and how you can make adjustments to finish strong.

Remember: What you focus on expands. If you don't measure it, you can't improve it. 

I have some really great news for all you smart-phone obsessed millennials. I'm not throwing shade because that includes me. There's a lovely, easy-to-use, beautifully designed application that can help you with all this measuring and reflecting that I keep going on about. Enter Personal Capital. 

 

What is Personal Capital?

Personal Capital is a tool for your personal finances. You can access it through the phone app or online via your computer. 

There is a long list of tools and features available to you through the app. Once you get it set up, here are the main features and tools ones that will help you with your mid-year gut check.

 

The Real-Time Account Balances Feature

You can see all of your account balances in real time. When I say all of your accounts, I mean all of your checking, savings, money market, brokerage and retirement accounts. You might be thinking, "Paco, you idiot, that's what technology does." Well, when I worked as a financial planner I didn't have these amazing real-time aggregating tools available to me. I wasted time emailing clients asking for bank statements and trying to make static spreadsheets to reflect what Personal Capital does in a few minutes. Gone are those days of us wasting our lives fetching data manually. 

So, if you're working towards a savings goal, keep track of it in your personal capital account. Keeping track of it there will let you know where you're at and if you need to make adjustments for the second half of the year. 

 

The Net Worth Calculator

Your net worth is calculated by finding the difference between all of your assets and all of your liabilities. Assets are things you own that have value. Value means you can sell the thing you have and someone will give you money for it. Unless it's already money, money is an asset. Here are some examples of other assets: a house you own, a car you own, shares of a business you own, the cash in your checking and savings accounts, the value in your retirement account, jewelry, valuable art or money that is owed to you because you loaned it to someone. 

Liabilities are what you owe. The mortgage, your student loans and your credit cards are all liabilities. 

In a perfect world, you have positive net worth. Having a positive net worth is helpful because it means you have more than you owe. If you have a negative net worth, it's important to understand why. Do you have crazy student loans or a mortgage and a lot of debt? Start keeping track of whether or not the number is going up or down. Try to set short-term goals. Measure your progress.

 

The Investment Checkup Tool

When you work with a person or company that gives you investment advice, they're required to figure out how much risk you have an appetite when it comes to your investments. Instead of naming it something cool and sexy, like Risk Appetite Test, they call it something totally lame. It's often referred to ask a Risk Tolerance Questionnaire. Snooze, right?

This is both a CYA (cover your ass) move on their part and helpful to you. It's a CYA move because they are getting documentation from you, the client, about your risk tolerance. This means when they recommend something risky and you lose money, they can go back to the questionnaire and say, "See. Even if you had no fucking clue what you were invested in, you still demonstrated that you have the risk tolerance for these types of investments." Or something along those lines. It's good for you because it helps you understand how you feel about risking your money.

So back to the tool. This is a tool that will analyze your overall investment portfolio. Your investment portfolio is all of your investments. It's analyzing how risky your portfolio is and comparing it to a risk questionnaire that you completed. It's basically analyzing what you think you want with what you actually have in terms of risk. And if your portfolio needs adjusting because of too little or too much risk, this tool will help you make those adjustments. Pretty cool stuff, guys!

 

The Retirement Planner Tool

The retirement tool might depress you when you see how much you're falling short in your quest to save for retirement. Maybe it'll motivate you to figure out how to earn more so you can save more. Maybe you're one of the few who is saving enough or more than enough and it'll give you a chance to give yourself a pat on the back. 

The tool is great because it allows you run numbers for different scenarios like having a kid and saving for that kid's college fund. This tool isn't any better than all of the other retirement calculators on the world wide web, the best part is that it's in same place as your other financial data so it's convenient.

The Cash Flow Analyzer Tool

If you are into using a budgeting tool and you would like that tool to be integrated with other applications you're using, then the cash flow analyzer is definitely for you. If you're just getting signed up, you can finish the year strong by imposing a budget based on the last few months of data.

 

The Tax Optimization Feature

This tool has a stupid name. I'm very sorry about that, but don't let it deter you from all it has to offer. Disclaimer: This is only available if you sign up for the paid version. 

Here's the thing about tax optimization. I'm not saying it's not important. But it's like shaving your legs when you're a cyclist or a swimmer. You only reach that point when you are already a pretty good cyclist or swimmer. Same with investments. Don't get too overwhelmed and if you're just starting out, you might not need to focus too much on this right. But know it's out there and that one day you'll care about it. 

Tax optimization are tax strategies that one can implement to make their investments more efficient and to help save on taxes. I won't get too into it here, but for those of you who nerd out on these things already you'll appreciate this easy to use function. Before this technology existed, portfolio managers would have to manually do calculations with their slow human brains. 

 

The Fiduciary Feature

Friends, let me help you up your financial vocabulary game. The next time you're at a dinner party, ask if anyone knows what a fiduciary obligation means. If anyone is still willing to talk to you after you ask that, here's how you can drop knowledge on their domes. 

A fiduciary obligation means the person (or company) who is giving you advice or acting on your behalf has a legal obligation to put your interest above their own. Not all people selling you financial products and/or offering you advice has a legal obligation to put your interests above their own. I know you're not shocked to learn of this short coming in the financial services industry. 

Personal Capital accepts the fiduciary obligation to put your best interest above theirs. They state it clearly on their website and I respect the hell out of them for that.

 

Old School Is Still Cool

If you're into keeping things old school because you don't want a tech company to have all your data, I respect that too. The reason why I recommend this tool is because I use it and it does help remove barriers and excuses people have for not having their finger on the pulse of their finances. If you have any other tools and suggestions, give me a shout and send it my way. 

 

What About Your Business?

If you're running a small business or you're a freelancer, now is a good time to do a mid-year gut check for your business. Here's how you can go about doing that.

 

Review The Monthly Books

Update your books and run financial reports for each month. Look at what happened each month. Were you able to consistently earn a profit? If you're consistently operating at a loss, understand how unsustainable that is in the long run. It's normal for the first few years, but if you're beyond that, there is something systematically or fundamentally wrong.

Do you have monthly income goals? If you do, how close or far are you from reaching them? If you don't, you can make realistic ones based on what already happened this year. What adjustments do you need to make in your marketing, pricing or operations to reach your goals? 

What about expenses? Look at each category month over month. Are there big spikes? Why? What's the narrative? Have they crept up too much or do you actually need to invest more into the company?

 

Touch Base on Taxes

Let your accountant in on your numbers. If you're having a great year, they might suggest you write a check to the IRS to help reduce your tax bill come April of next year. Maybe they think you should reduce the amount you're paying yourself for the next quarter. Maybe they'll suggest it's time to set up your LLC or S-corp before the year ends. 

 

Make A Projection for the Second Half

Use the data you have from the first half of the year to make projections about what you can expect for the second half. If you just hired someone this year to help you, has that helped increase revenue overall? How much did it cost you to invest in this person, train and develop them? How many months did it take you to get a return on that investment? That data is important because it'll help you understand how much it will cost you to expand your team and when you can expect to leverage new employees or contractors.

 

Review Your Insurance

If you have a lull in the summer, now is a good time to review your business insurance. Do some industry research. What's normal in your industry and how are you putting yourself at risk? Do you have employees? Do you do large scale installations that require human beings to be on ladders or using gnarly equipment? If you have an insurance agent, call them and they'll be happy to revisit your insurance.

What is your company worth (check out your balance sheet)? Make sure you've got enough insurance for the amount of risk you're taking. 

If you need help navigating the landscape of business insurance, check out this new kid on the block: Embroker. They have helpful guides and are working really hard at making insurance shopping more pleasant.

 

At the risk of sounding corny, I hope you have a great fucking second half.