CFO of Life #95: Master Your Money:? Conquer Your Mid-Year Review in 5 Simple Steps

?Most of us (me included) set our New Year's resolutions at the beginning of the year. And we went into execution mode, we started building a road towards success. Now 6 months later, it is time to review, rewrite and regroup so we can achieve our best in 2024!

?Reviewing your personal finances is always a daunting task! And I know that from my personal experience as it usually takes me 2-4 hours, a few coffees and at least 1 snack break. But the process is super straightforward and extremely rewarding.

?Imagine that you are like me and you find out that you have spent a lot more on travel and entertainment, so you don't have any budget left. How would you react if I told you it was not the case? Or how would you react when you see that you have consistently invested more than 10% of your earnings? Or if you realise that your rent is 40% of your earnings?

?Those statistics are extremely important if you want to fulfil your New Year's resolution by the 31st of December 2024!? To do so, let's use those 5 questions as guideposts on how to run this process:

1. Where did you get?

2. Where did you want to be?

3. What did you achieve and what you didn't?

4. Can you make it up for it in the next 6 months?

5. Rebalance what is needed and ease your mind.

Why these? Well, they cover everything you need to do to facilitate your mid-year review. Those are the 5 questions I would use at work when helping someone review and redo their budget.

?Since this is a personal finance blog, let's use my numbers from article #68 where I laid out my yearly finance goals as the basis of this 5 step review. As you will see, I have hidden the actual $ value of my earnings and my goals, as this is not something I feel comfortable sharing.

?But all the numbers are skilfully converted to % of income, making our comparison easier and straightforward. It also removes any bias from the numbers and ensures that the current and target numbers are compared on the same scale.

?Now let's start!

Step 1. Where did you get to in those 6 months?

If you are like me, you put all of your expenses into a spreadsheet and assign a category to them, that way you will precisely know how much you spend and on what. That exercise would make your mid-year review a lot easier, quicker and more transparent.

In the case that you haven't done this and you want to start tracking your expenses, you can start by reviewing the following articles (in the order presented):

1. - 3 Brilliant Ways To Efficiently Tracking Expenses

2. - Budgeting 101 - Post #7

3. - 50%/30%/20% - A simple and bulletproof budgeting method - Post #8

4. - CFO of Life #11 The magical Japanese budgeting system – Kakeibo

5. - CFO of Life #9 4 Advanced budgeting strategies to achieve your financial success

Alternatively, you can use your banking app to tag all your expenses and measure them against your budget. However, since not all apps have this functionality, you might need to do some manual work.

Once you do all the tracing, you will have something like this:

The idea is to be honest with yourself and see the results for what they are. Refrain from fudging the numbers, mark everything in the category it should be.

Then take one good look at where you landed and prepare for the next step.

Step 2. Where did you want to be?

Once you know where you landed, it is important to remind yourself where and why you wanted to be this year.

For me, that meant keeping close control over my spending, but also ensuring that I spend enough on entertainment and personal care.

At the same time, this meant that I needed to keep a close eye on all my core experiences and make sure I didn't overspend on food.

But what did you want to achieve? Did you want to get a grasp on your expenses or did you want to spend more on certain categories? Or did you just want to learn more about your habits and how you spend your money?

Step 3. What did you achieve and what you didn't?

?Now that you reminded yourself of your targets and you know where you landed, it is time to compare the two.

Before we start:

All the numbers in green are % above the target

All the numbers in yellow are % under the target (that are less than 25% under)

All the numbers in red are % under the target (that are more than 25% under)

?Again, income is out of whack as this is a highly optimistic target, but so are the investments as % of income. At the same time, as you can see, I am doing a lot better in investing my income and that there is a non-zero chance of reaching my target! Furthermore, you can see that this is possible as I am 9% above my investment target. I know that it is not the nor, but I do my best to focus on investing and saving money.

?Another interesting statistic is that I spend only 21% of my income on rent, which substantially contributes towards being able to save and invest a significant portion of my income. On the contrary, I am spending quite a lot more on my personal care and that is all because I started doing personal training sessions to improve my gym performance. That was one of my greatest purchases this year. Spending time with a trainer has allowed me to calm my mind and clear my thoughts. It also kept me accountable to show up in the gym and practice otherwise, I would not only miss my training but would disappoint another person.?

?To be honest, I am happy that my numbers look so boring! It shows that I am doing well to keep up with my plan, but also that it is quite realistic (except the income number).

?Hopefully, your numbers are in a similar state and you were not “surprised” at all. If you have found some interesting things, you still have 6 months to change them. Or you can start moving towards your ideal state and land there early next year. To do so, you need to amend your plan and follow it religiously.

Step 4. Can you make it up in the next 6 months?

6 months is a lot of time and you can make up a lot of lost ground on your goals, but you need to put time, intention and action behind it. And if I can make it, then you can make it! Here is what you need to do to get your house in order and reach your goals (as much as possible) in the next 6 months: -You need to be realistic about what has happened in the last 6 months

-You need to be realistic about the habits that perpetuate your behaviour that make you spend

-You need to be realistic about what purchases you made that pushed you away from your goals

-You need to be realistic about your goals and if they were not as realistic

-You need to be realistic about why you want to reach those goals and if you need to adjust them

-You need to be realistic about how much you make and if there is a need to make more money?

Once you know what your problems are and what is causing the mismatch between your behaviour and your goals, the road is clear and you, yourself will know what you need to do to get there. Take a pen and paper and write down all the areas where you have a huge difference between your current spending and your plan.

Then for each category, list the top 5 things you purchased which pushed this over your goal. Then be honest with yourself - “Did you need those or did you want them?”

Don’t judge yourself, just use this as a learning opportunity, but a good and honest one not a “Yeah I needed that vacation as everyone else went there and I also want to go”. Repeat that for all the categories that are above the lines, and if you need to move forward and redo your goals. Be realistic and make sure you are not pushing yourself too hard and on the contrary, don’t be too lenient with yourself that you give yourself a pass for anything!

Step 5. Rebalance what is needed and ease your mind

After you realise what needs to be done, you need to work on your money psychology. Relax, if the situation is not extremely dire and all the categories are red, you are not going to die. There is always a way out but you need to control your mind as much as you control your numbers.

I remember when I had close to nothing in my bank account, it was extremely hard to think about anything other than making money. So I do know the feeling of your raising around and making you anxious and worried about how you will pay the bills. To do so, I found hobbies that helped me calm my mind and supplement my money goals. That is how I learned to make good food, but also how to make bulk meals and reduce my costs. It is also how I got into personal finance, as it was something to help me manage my money and occupy a lot of my time by reading books or listening to podcasts.

For you to even have the “luxury” of relaxing and doing something like that, you need to take control of your thoughts. You need to somehow dissociate that feeling of urgency with a hobby or a new journey (as long as the situation is not extremely bad!). If you manage to do so, you will increase your chances of reaching your goals. I believe that you can do it, just take the time and do your best.

Now that you have my guide on how to do a mid-year review of your finances, you are ready to go and do the work. If you are consistent, this should not take more than 1 hour, and you can walk out with a better insight into how much you can afford and for what. On the contrary, you might find out that it is time to reduce your spending and stay home a bit more. There is nothing wrong with it, you need to do what works for you to get to your goals.

Are you ready to take your time, review your numbers and get to your goals by December?

Thank you for reading! All comments and topic suggestions are highly appreciated. Post #95 in the series CFO of Life #si #personalfinance #CFOofLife