Corporations take a close look at their financial situation, and progress towards goals, every quarter. The business of you should do that too.
OK, technically, they do it every day/week/month as well. But at the end of each quarter, they typically do a more detailed financial assessment.
Today I’m going to walk through my Q2 close-out process, in hopes that it might help you get smarter with your money. Yes, there will be spreadsheets. Calculations. And bonus – I’ll even perform the process early, to report to you all how this year is going so far over here at CMO Central.
So sit back, relax, and get ready to dive into the most comprehensive view of your personal financial and goal situation you’ve likely ever seen. The first half of this article will be comprehensive, detailed, and a bit technical – while the second will be full of life updates and fun pictures. There’s something for everyone!
And be sure to leave a comment with how you’re measuring up on your own 2018 goals!
To Start – Your Baseline
In order to really understand whether or not you’re on track to meet your goals – whatever those might be – you need to know three things:
- Where did you start?
- Where are you going?
- How are you getting from where you were to where you want to be?
As long as you know those three things, your quarter close out process will be relatively painless. Let’s look at each one more closely.
Where Did You Start?
Long time readers will know I am a huge fan of net worth tracking. I outline my process in detail in this post, but I’ll do a quick recap here. Note – this is where other bloggers might pitch Personal Capital, but I don’t use it. I use Excel, and it’s in a spreadsheet that goes back to 2007. Sadly my earlier spreadsheet that went from the early 2000’s to 2007 has been lost.
My net worth is divided into three primary segments:
- Home equity and debt. The only debt I have now is the mortgage, but when I had other debt I included it in this section. Since my home equity can’t be easily tapped (unless I sell my home, which I don’t plan to do), I count it as an illiquid portion of my net worth. I know some people don’t count home equity at all, but I do. Just separately.
- College savings. I have three boys I’m saving for, including one that’s going off to college in three short years. Kids and college is an important topic to me, one that I’ve written about many times on the site. Since these funds are for the college goals, they have their own section. They’re counted in my net worth because they are assets for my future use. If my kids don’t end up going to college, I would re-purpose that money.
- Everything else. This includes savings, investments, and retirement. The bulk is in pretax retirement accounts.
You can create a customized net worth snapshot for yourself, based on your own goals. If you’re pursuing early retirement, you likely want to track post-tax and pre-tax funds separately. Maybe you rent, so no home equity to worry about, or you don’t have kids. Perhaps you want to track payoff of different types of debts separately – for example, student loans vs. credit cards. Or it could be that you have a goal of taking a mini-retirement, or traveling the world. I would create a separate section for each major goal, to make it easier to track your progress.
Where Are You Going?
This step boils down to knowing your goals and dreams – I outline a process to get to know those here – and creating monthly and/or annual targets to get you closer to them.
For myself, my primary financial goals are to (1) pay off my mortgage; (2) save for my kids college according to their college compact; and (3) to reach financial independence. I don’t ignore (2) and (3) while I’m pursuing the first goal. In order to reach my goals, I need to continuously save for college and financial freedom in parallel with paying off the mortgage.
Also, once the mortgage is gone, I want to take my family on a special trip to Europe or Japan. Or both. I have a special fund for that, and I don’t need to contribute any additional funds now, so I just track it.
My goals and dreams might change over time, and that’s OK! Doing a quarterly check-in is a great time to make adjustments if needed.
How Are You Going To Get There?
Once you know where you are, and where you want to be, you need to know what are the steps you’re taking this quarter/year to get there.
Two key documents help me manage this:
- An annual budget. Yes, I also have a monthly budget, but I’ve found that an annual budget helps me plan out the year. I’ve always found traditional budgeting advice rather lacking, because they often suggest having the same budget every month/pay period. I was always forgetting something, or finding that each month varied widely (helllooooo, oil bill in Connecticut). Having an annual budget helps me craft my monthly budget – and also to measure progress for the year.
- Annual goals. These are my goals for the year. You can check out my 2018 goals, including my awesome goal infographic, here. I can tell you right now that my goals of reading four books a month, and walking at work three times a week, are a big fat F right now. Also, my job-related goals changed, because I’ve moved into a new role at work. See – things change! And so I’ll need to make adjustments.
The Assessment Process – The Down And Dirty
All right, now it’s time for the fun part!!!!!
And by fun part, I mean getting up close and personal with my account values and spreadsheets. Yes, I consider that fun. No, I’m not weird.
OK, yes, I am a bit weird.
My process is manual due to the aforementioned Excel spreadsheet process. Obviously, if you use an aggregator like Mint or Personal Capital, it’s much easier. I guess I’m just an old-fashioned 38 year old.
The first thing I do is log onto each account and type in the value. I even do this with my credit card, which I pay in full each month. The goal is to get an accurate “point in time” snapshot of my financial situation.
- Retirement accounts
- Savings accounts
- Checking accounts
- Savings bonds (hello Treasury Direct, you have a very secure but very painful system)
- Investment accounts
- 529 accounts
- Credit card balance
All in all, I log into about a dozen different systems for this. Since I’ve been doing this a long time, and everything’s already organized, it takes me less than an hour.
You’ll note there’s no “home value” on this list. I keep my home value the same as when I purchased the house (12 years ago), because I’ve found Zillow and similar sites to change too frequently.
Then I pop every account value into its correct row, adding accounts if needed – I don’t delete old accounts so the past progress is accurate.
Budget – Forecast vs. Actual
Yes, my budget is also manual in Excel. This process is easy because I spend a few minutes every morning updating my spending record. I record spending monthly, and have a master spreadsheet that has a column per month, a column per quarter, and an annual column.
I compare my progress for the year against my original forecast. Given that we’re halfway through the year, many categories should be halfway through my budget. If I’m far over, or under, I may need to make adjustments. Those adjustments could be changing my spending for the next six months, or it could mean updating the budget.
There are other categories that won’t be halfway through – the oil bill and Christmas gifts are two that come to mind immediately. It’s important to know which categories are which, and assess your spending to date accordingly.
This process takes less than half an hour.
Goals – Planned vs. Actual
Now for the part that’s even more fun – assessing my progress against my annual goals.
To make sure I’m on track to meet my goals, or make adjustments as required, I check in on my goals. I haven’t done it on the site yet this year (too many other fun things to write about!) but it is something I ideally do monthly. At a minimum, though, I want to do it every quarter.
Particularly when you’re working towards very long term goals like paying off a mortgage, saving for college, or trying to build wealth, you need to stay on track for a looooong time. That’s why shorter-term milestones are important to keep you on track.
So, How Am I Doing?
I don’t share specific dollar amounts here, but I will share my assessment of how my net worth, budget, and goals are performing this year. Accountability for the win! And don’t forget to share your personal assessment in the comments.
I calculate my net worth, but I don’t have specific net worth goals for the year. Why not?
Because most of the movement is now at the whim of Mr. Market.
Instead, my goals are centered around how much we save, how the mortgage balance is doing, and how well the kids college accounts are performing.
This year, the markets aren’t performing overly well. The S&P 500 is up only 1.6% so far this year, after some wild ups and downs. Nothing’s changing about my overall strategy, though, so I plan to just “stay the course” as Mr. Taylor Larimore of Bogleheads fame would say.
Budget vs. Actual
After checking out my Q2 spending, and analyzing the first half of the year, I’m seeing several problem areas that we need to focus on for the second half of the year:
- Eating out was really good in Q1, but terrible in Q2. They seem to have balanced each other out, but it’s something we’ll need to watch closely over the next six months.
- Entertainment is creeping up on the year-end amount. We have some extremely low months ($8.91 in January, for example) but a few spikes. Time to focus on free entertainment! Some of this was buying supplies for crafts that should last me through year end.
- Groceries are actually doing ok…ish. But it’s a bit higher than we should be at this point. So we need to dial that back a bit.
- Oil will need a few hundred added to the annual budget. The exact amount will depend upon oil prices in the fall. We typically have to pay for oil from November – April.
Most categories are right on track. We have a few where we’re way under where we should be by this point in time though, but that’s because we haven’t made a big outlay. For example:
- Home repairs and improvement is at only $63.75 for the year. I set aside a larger amount of money in anticipation of redoing a room in the house this year, which I’m not sure we’ll do. I think I’ll lower that so I have additional funds to cover some of the overage in the oil.
- Vacations is way under budget, but that’s because we’ll be going this winter on a larger trip. We will be going camping next month, so some of this will be spent then.
Then there are expenses on my annual list that I haven’t incurred yet. Things like safe deposit box fees (December), car taxes (July), Amazon Prime renewal (fall), etc. I keep these in my annual budget so I don’t forget about them when I’m creating the budget for the month.
Also, my income is higher than I originally projected at the start of the year. This will help with some of the areas where I may need to up the budget. In most cases, though, this assessment helps me see where we need to cut back for the rest of the year to come in on target.
Now how about those 2018 goals? Here’s my original January post on them. Lets check in and see how we’re doing.
My Family Goals
Oldest – Last year my oldest son went from First Class scout to Star Scout. This year his focus is achieving Life Scout, which is the final rank before going for the one most people know – Eagle Scout. More about the financial side of scouting can be found in my prior post here.
Pass – He’s well on track to meet this goal. He already has all of the requirements except for teaching a younger scout, which hopefully he can work on at camp. If not, he’ll need to work on it this summer. He’s already starting to work on earning his badges for Eagle.
He finished off the year with high honors and great grades. In fact, he’s now signed up for all honors courses next year. Off to sophomore year!
Middle – Pass. He was great in the role of Little John in Peter Pan, did an awesome job at band, and joined a Boy Scout troop. In fact, right now he’s off with his brother at Boy Scout camp! Unfortunately he didn’t get a spot in the magnet school, so he’s enrolled in our towns school (which is a good one). He’s on the waiting list, though, so we’ll see.
Youngest – Pass. He turned three with a bang, and an owl cake. He’s all ready to head off to preschool in the fall! He can sing the ABC’s, Happy Birthday, and count pretty high. For fun, sometimes he’ll even count in Spanish. He sure loves Dora!
At the start of the year, I wrote this:
“Nothing huge planned on the work front this year, at least not as of yet. I’ll be working on a new project but the same measures of success (on time, on budget, with the right scope). I’ll also continue helping my overall department with the agile transformation, and look for other opportunities to do activities outside my day-to-day work role. In the past 15 plus years in corporate America, I’ve learned the only constant is change. So I’ll be looking out for changes and the opportunities they bring.”
Big Change Alert! Well things changed in a big way, when I accepted a role in our International IT group starting this past Monday. This is on a big project where I can be a huge help, and make a real difference to the people who are working on it. It’s with a totally new group of people, and likely will involve international travel. I don’t know if I’ve mentioned it before, but my MBA is in both Technology and International Business, so this is something I’ve always wanted to do.
On the blog front, I had a very ambitious goal to reach 100k people (NOT VIEWS) this year. Pass. No, I didn’t somehow reach this goal in the middle of the year, but I’m just about halfway there and this site is growing fast. For now I’ll keep this as my goal, but maaaybe start thinking about a stretch goal.
In terms of income, I had the modest goal of earning “enough” through this site and freelancing to break even on expenses like site hosting, e-mail, domain name, and FinCon travel, as well as enough to start investing more into the site itself. This one is done. And I still don’t have ads! And the year’s only halfway over!
Books – Fail – I wanted to read a book a week, but I’m more at a book a month. Most weeks I don’t make it to the library. Hope to change this in the second half of the year, I love reading but lately just have been running out of time.
As for the recipes and art, I’m going to give myself a pass.
Here are some of the new recipes I’ve made – Mexican conchas (using this YouTube video’s recipe), a Peep cake and an owl cake, English Muffins, a chocolate chip cookie recipe when I ran out of EVERYTHING, a failed flan, pineapple teriyaki pork, and stir fried rice. I’ve made a LOT more than this (including plenty of homemade bread), but these were the new recipes.
I checked my Instagram to make sure I was on track (be sure to follow me if you’re not already, assuming you enjoy food & frugal fun), and I can see that I’ve done a painting project with nine paintings total; made a necklace; refinished and painted an old metal birdhouse; made puppets out of my potholders; created paper-chain dragons for the little guy, and more that I’ve forgotten. So pass.
Redo one room in the house – it’s in the budget, so Pass. I’d like to do this next month before we go camping.
Oh CMO, you mean you can’t have a high-powered corporate job in technology; be a mom to a teen, middle schooler, and a toddler; run a successful website; bake awesome stuff; do art; etc. etc. AND read a book a week??? What’s wrong with you!
Note – that was sarcasm.
How do I do it all? Easy, I don’t.
Mortgage payoff fund is DONE for the year. Woot woot! I just might be able to pay it off next year. Fingers crossed.
Retirement and HSA are a PASS. They’re both on track to being maxed out.
College is a tentative Pass, but the market isn’t performing well this year, so I might need to pour more raw savings in to meet my goals. I’ll continue to asses through year end and fund more as needed. Remember, I only have three more years to save before my oldest goes off to college.
We changed our big travel goal– instead of a summer road trip, we decided to take a winter trip out west. That new role I’ve taken means that I’m a newbie again. We’re still going on our summer vacation at the local campground, but we’ll save the big trip for winter break.
Day trips – we’ve been to a few new places in New York City, took a trip up to UCONN, and went to the Pez factory. My husband also took the little guy to see the trains. Since this is only four trips, and we should have had six, I’m going to say it’s not quite a fail, but not really pass.
Our annual camping trip/time with the scouts is a Pass. The summer camping trip is booked, scout camp is underway, and we’ll be there for the fall trip as well.
No planning yet on our big post-mortgage payoff trip – need to start that in the second half of the year.
Top goal here is to have no major health events for my husband. Since a very large and complex surgery in 2015 (total abdominal wall reconstruction, for those interested), his overall health has been stable. So far so good, so Pass.
My son is doing the Swimming merit badge, rather than hiking. So Pass on that one – he’s actually working on it right now at camp.
And a big Fail on my “walk three times a week at work” goal. And here I thought it would be easier this year. NO.
So, How Am I Doing?
So overall I’d give myself a B. Mostly passes, on track, or deliberate changes, and only a few outright fails. And the passes are on some pretty significant goals, so I’m grading on a curve.
There are some categories where spending is a bit high, but we haven’t totally blown through the annual budget. This means there’s still time to make adjustments in the next six months. My husband and I sat down and went through all the gory details of where we need to cut back. This is something I’ll be monitoring more closely for a few months to make sure we’re on track again.
And How Are You Doing?
Did you perform your in-depth Q2 closing assessment? If not, it’s not too late – you have two more days to plan!
So get out those spreadsheets (or your software of choice), find your goals you set at the start of the year, and take a long, hard look at your performance.
And guess what? If you’re off track, or you never set goals to start with, it’s never too late. Today is a new day, tomorrow’s not here yet.
You can start changing your life anytime you want.
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