This fundamental task for managing your personal finances, investing and saving for retirement would often be left on a must-do-tomorrow list – and perhaps never done.

Behavioural economists typically rank investor inertia and procrastination high among behavioural traits that are enemies of investment success. And never getting around to preparing a personal financial register would often be part of that inertia.

A personal financial register – updated as your circumstances change – is critical for a range of personal financial issues. These include saving for retirement, preparing a personal financial plan, setting your portfolio’s asset allocation, controlling your spending and estate planning:

• Preparing a financial plan: A good starting point for preparing a comprehensive financial plan, perhaps with the guidance of an adviser, is to prepare a personal financial register. You can then make more informed and realistic decisions – including about your long-term goals, targeted returns and tolerance to risk – for your financial plan.
   
• Setting your portfolio’s asset allocation: An up-to-date list of your super and non-super investments is necessary to set an appropriate asset allocation for your portfolio. Repeated research, including by Vanguard, shows that a diversified portfolio's strategic asset allocation – the proportions of its assets in different asset classes – is the main cause of variations in its long-term returns.
   
• Keeping your personal spending under control: A basic rule for investment success is to try to spend less than you make so as to have money left over to invest. An accurate personal financial register should help you to take a realistic approach to spending given your income and assets.
   
• Saving for retirement: A financial register is necessary for estimating how much you will need to save for retirement. You can then plan how to save to meet your savings goals.
   
• Spending in retirement: Without a personal financial register in place at the eve of retirement, retirees may have a poor understanding of how far their financial resources will stretch. This may lead to overspending or being too frugal given the state of your finances. And you may miss opportunities to more efficiently manage your investments and spending in retirement.
   
• Estate planning: Having an up-to-date personal financial register is a central part of estate planning together with such tasks as making a Will and nominating beneficiaries for your super savings. A financial register should give you and, eventually, your intended beneficiaries a better understanding of your finances.

As Smart Investing has discussed, the last baby boomers celebrate their 70th birthday within the next 15 years as a growing proportion of the population reaches old age. This should underline the need to save for retirement and for estate planning – and that should include having a personal financial register.

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
20 May 2019