It’s Time For Our Mid-year Review: Goals, Budget & Investment Portfolio Allocation

This post is for all my fellow financial voyeurs out there … or anyone looking for another real-life example of how people successfully manage their money. There is clearly a public stigma when it comes to talking about money. I think the more we talk about this openly as a community, the more we can reduce this stigma and empower people to take control of their finances. So for these reasons, and for our own accountability, I’m sharing how we perform our mid-year financial check in, including updates on our 2021 financial goals, budget, and investment portfolio allocation.

Your goals, circumstances, and decisions will likely be different from ours, and that’s OK!

Our Mid-year financial check-in

We perform a lot of the same tasks during our mid-year review as we do in our year-end financial check-up. The main difference is that in the middle of the year, there is still time to make changes or course correct if we’ve gotten off track.

Like year-end, I do most of the nerdy analysis. Once I’ve finished it, Mr. RFL and I set a “date” to discuss everything over a glass of wine.

Here’s a look into our 2021 mid-year financial check-in.

Our Current & Target Investment Portfolio Allocation

During our mid-year review, Mr. RFL and I compare our current portfolio allocation to our target allocation to assess how we’re tracking. We also discuss and update our targets, if needed, to make sure they align with our current investing strategy.

At mid-year, we were within our initial 2021 portfolio allocation targets, with the exception of having too much cash, which has been too high for over a year now. However, we also decided to adjust our target range for bonds down by about 5%, which then pushed us out of range.

With bond yields in the toilet these days, we decided that holding 20% of our investments in bonds is too conservative for us, even if a good chunk of them are junk bonds.  We’ll continue to reassess our targets and may bump this back up once Mr. RFL finally retires.

Here is the current investment allocation of our Financial Independence portfolio, as well as the allocation at year-end and our current targets for each asset class:

Portfolio Allocation

For simplicity, bonds exclude the assets under Mr. RFL’s deferred compensation plan. Although these are fixed-income investments, we have no control over how they’re invested and the Company match is 100 %, so it’s a no brainer to max the plan out.

The cash balance above excludes our emergency fund and renovation SINK fund. We obviously want to move this balance closer to our target. The recent housing boom means we won’t be making any big real estate investments anytime soon. And although I am well aware of the math behind dollar cost averaging vs. lump sum investing, I still find it emotionally difficult to dump large sums of money into a market as volatile as this one is.

After revising our bond targets, we performed a portfolio reallocation within one of our retirement accounts (no tax impact) to remove bonds and reduce the allocation of new investments to bonds. This brought us close to our target range. We’ll work on getting the rest of the way over the next 6 months.

Mid-Year Budget review

As you may know from our monthly expense reports, I track and review our actual spending every month. However, we don’t worry much about how that spending compares to the budget. Why? Because we consistently save around half of our paycheck and have earned the financial freedom to stray from our budget whenever the mood strikes.

Budgeting is still an important part of our financial strategy. But for me, it is more a way to predict our expenses for financial and tax planning, evaluate how accurate those predictions were, and to keep us from veering too far off track. As such, I only perform full year-to-date comparisons of budget a couple times a year.

Here’s a look at our 6-month YTD budget to actual comparison:

Budget Review:

Although I try to budget by month, I don’t always get the timing right, so some variances are expected. However, we were over budget by a lot in a couple categories during the first half of the year. Luckily, most other categories came in under budget, which partially offset the overages.

Our largest overages came from groceries and medical.

The increase in medical expenses was completely unexpected this year, stemming from my health issues earlier this year which led to several pricey specialist visits and procedures. Another reminder for why you should always keep a little extra cash on hand.  

Groceries was the other large overage. Although we’ve reduced our food spending significantly over the past few years, we are still tracking ahead of our budget for the year, so plan to watch this more closely during the second half of the year.

Conversely, the biggest budget savings came from the delayed opening of the world (or at least our comfort level with it), which caused us to spend less on restaurants, activities for our daughter and personal care services.

If you’re interested in more details of our spending or what we include in each of the categories above, you’ll find that and more in our monthly financial updates.  

2021 Financial Goals Update:

Mid-year is a great time to check in with your goals and course correct as needed. We set six financial goals for 2021, which I shared on Instagram back in January.

Here’s how we’re progressing…

1. Savings rate of 65%+ on after-tax income.

Although we’ve had some spending overages during the first six-months, our passive income has also been above keeping us within our budget. We’re currently standing at a year-to-date savings rate of 68%.

2. Max out tax advantaged accounts.

We’re still on track to reach this goal. Since most of our tax advantaged contributions occur ratably over the year, we should reach this goal in December. While we had originally planned on front-loading our IRA contributions for the year, we recently decided to delay making these investments until later in the year after performing our annual tax-planning in April.

3. Invest $40k in taxable brokerage

Goal achieved! We invested $46,000+ into our brokerage accounts during the first six-months of the year. We won’t have as much to invest over the rest of the year, since some of the money invested was from a one-time bonus, plus the $9,500 we had planned to invest in our IRA during the first half of the year.

4. Pass 65%+ FIRE

Goal achieved! Technically we set this goal before we lowered our FIRE Number to $1,000,000. Obviously, with the lower number we have this goal beat. However, even using our original FIRE calculation, we’d still be above 65%. Strangely the market just keeps going up these days.

5. Increase charitable donations by 20%.

Traditionally we’ve made the majority of our donations near year-end. Given the struggles that many non-profits have had over the past year, I’ll move this timing up for 2021 and make our more significant donations over the next month or two. We will donate at least 20% more than we donated last year to hit this goal.

6. Stretch goal – lean fire.

If you read our June financial update, you’d know that we passed this milestone last month. However, this is another goal where we received the benefit of having lowered our FIRE number afterwards. Using our old FIRE number, this would still be a possibility for year end, but we would not have hit the target yet.

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