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Why it’s important to review your financial security

Learn more about why you should regularly review your financial security and how you can do so on your journey towards wealth creation

Financial security is when you have enough money to protect your living expenses, support you during times of hardships, and establish wealth for your financial future. As you could imagine, it’s imperative to regularly review your financial security. Doing so ensures you’re able to meet existing and up-and-coming conditions.

Assessing your financial security is good on your wealth creation journey!

Why would you review your financial security?

There are numerous reasons why you may choose to review your financial security. The most common ones are:

  1. Ensuring you’re on track to achieve an early, self-funded retirement

  2. Giving you the ability to sleep at night

  3. Financial goals regularly change

  4. Economic conditions change

  5. Financial related legislation changes

  6. There’s a change in your income

  7. Unexpected events occur which can affect your finances

How should you review your financial security?

How you should, and how often you choose to review your financial security will depend on your goals. Though, we suggest doing so on a quarterly basis, minimum. This’ll help you to understand how your finances are performing (and in accordance with existing economic conditions).

When reviewing your financial security you should be doing so every three months
When reviewing your financial security you should be doing so every three months

When revising your financial security, you should look at:

Your emergency savings

Your emergency savings or, as we like to call it, a war chest, is an allocation of funds that can support you throughout times of hardship. They’re about six months’ worth of savings that have been accumulated to protect your cost of living, investments, and other assets.

If you’re revising your finances, you should ensure your emergency savings are up to date with existing living costs. As we’re already noticing, costs to living have significantly increased in the last few months. Therefore, your emergency fund(s) should correlate with external economic conditions.

For more information on war chests and how you can adequately create one, feel free to check out this earlier article of ours.

Reviewing where your finances are tied up

Do you know where your money is tied up? This could be in the form of:

  • Stocks

  • Shares

  • Real estate

  • Other investments

  • Superannuation

  • Managed funds

Being sure of where your money lies is one of the most important factors when reviewing your financial security. It helps you recognise there’s enough there and if you need to take further steps to grow it.

Evaluating the performance of your finances across your asset portfolio can also allow you to make informed decisions around whether to hold onto them.

It’s important to remember that when you invest your finances it’s not always a matter of setting and forgetting. External factors can change regularly which can impact it. As First Financial Consulting says in relation to reviewing your investments, “financial security demands regular review…it is maintained by diligence and discipline."

Your finance structures

This is a big one! Especially if you own investment properties. We come across investors who give banks too much security over their assets. Cross collateralisation occurs when investors utilise one or more of their assets to secure a loan or several loans. It’s a messy structure, especially when not done properly.

It’s important to regularly review your mortgage and other lending commitments to ensure that banks don’t hold too much power over your investments. If you’re a mortgage holder, we suggest reviewing your finances every two years to avoid this.

To learn more about the complications surrounding cross collateralisation as a mortgage holder, we suggest reading this earlier article we wrote.

Your retirement/ superannuation fund

When on your wealth creation journey, you should be establishing structures that’ll support you in achieving an early, self-funded retirement. When reviewing your financial security, you should be looking at your retirement/ superannuation fund. Doing so will help you determine if you’re on track to achieving your financial goals. It can even help you determine how long it’ll take you to get there and how much you’ll be able to survive off.

Get your finance commitments in check

Do you need to have your financial commitments or mortgage(s) reviewed? REIF have access to more than 40 Australian lenders and can assist you with your lending needs. Be sure to click below to book your free financial review.

Alternatively, feel free to call 1300 130 932 to learn more.

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