Level Up! Why you need to change your financial thinking with your financial position.

When it comes to your finances there is a lot to consider. Balancing the different aspects of your money can be complicated and knowing when to make the next move is often tricky. One of the best ways of dealing with the complexity involved with your personal finances is to perform a financial health check every now and then. At least once a year you need to review your full financial situation and consider how you are doing across every aspect of your finances.
 
If you don’t know where to start, try answering the below:

• Are your expenses increasing? If so, where? Is this acceptable considering your goals? Can you do anything to lower them?
• Is your debt under control?
• Is your income growing? Is there anything you can do to increase the chances it will grow in the next year?
• Are your assets growing? Are you getting the best return on assets for the level of risk you are comfortable with? Are you diversified across different assets?
• Are there any risks that you can or should insure against? Are you insured against any risks that are no longer relevant? Is your emergency fund appropriate for your current situation?
• Are you putting enough into your pension?
• How are you progressing towards your goals? Have any goals changed? Do you need to save/invest/borrow more to meet these goals?

 
Once you have performed your financial health check, you need to consider how everything looks in relation to the bigger picture. After you do this, you may have to change how you think about various aspects of your money.
 
When you are starting off, having €1,000 emergency fund is great. When you have a mortgage, kids, and a sick elderly parent it is probably not.

When you have built up a large level of assets, using a credit card might be a better emergency fund than money in the bank. Having built up €30,000 credit you can use if needed can be more efficient than sitting on €30,000 in a bank account earning 0.1% interest.

When you are saving for a house deposit, not having a pension might be fine. Not having a pension from age 40 without having significant assets is not.

When you have no assets not having a will is fine, but is foolish when you do.
If you have kids, you probably need life assurance. This is more important when you are younger. Less is needed later. The good thing is that it is cheaper when you are younger.

The main point of doing this exercise is to consider each aspect of your finances in relation to your overall financial health, how it matches your risk appetite and whether it helps you meet your goals.
 
Sometimes, or possibly every time you do this exercise you may need to level up your thinking. If you are actively improving your finances you will need to change different aspects to keep them in line with your current life stage.

Managing your money is all about trade-offs. If your main goal right now is to save up the cash for a house deposit, it can be okay to put other things on the back burner like pensions, investing and you might spend less on some areas to increase the rate you can save at. However, if you don’t have a large goal at this moment and you have a high savings rate, you need to consider how pensions and investing will help your current and future situation.
 
It’s easy to get mental blocks when you don’t stop to assess the overall all picture. The person you are when you leave school is different to the person you are 3 years into your first job, and is different to the person you are 10 years into the workforce with a house 2 children. By doing a full assessment and considering the bigger picture you keep a grip of how you are set for your current position, not where you were in the past.
 
You need to be thinking at the level you are at, and at the level you are going to.