In investing, there is something called rebalancing your portfolio. A portfolio has different asset classes in it (such as stocks, bonds, and cash), and there is a particular allocation that best serves your financial goals.
Over time, however, your portfolio might go out of balance. One asset class might outweigh the others because its price increases rapidly. The allocation will then deviate from its ideal.
What should we do then? How can we handle such a situation?
The answer is rebalancing.
Rebalancing is the act of getting the asset allocation back to its ideal. You do it by selling the asset class that’s overweight and buying the one that’s underweight. With this, your portfolio will once again be in a good shape to serve your financial goals.
I believe that the idea of rebalancing also applies to life. You need to make sure that your life is balanced and if it’s not, you need to rebalance it.
In investing, the asset classes are stocks, bonds, and cash. In life, the ‘asset classes’ are the five aspects of life:
- Spiritual: your relationship with the greater power.
- Health: your physical health.
- Work: your career and finance.
- Social: your relationships with others.
- Learning: your personal development.
We need to rebalance our lives from time to time. Here are the steps to do that:
1. Find the aspects that are underweight.
Look at each of the five aspects. Which ones do you think are underweight? Which ones do you think need more attention?
2. Find the aspects that are overweight.
Now, do the opposite and find the ones that are overweight. Where do you spend so much time and energy that it takes away from the other aspects? Which aspect dominate everything else?
For many people, the answer might be work.
There is another possibility actually. It’s idleness. This is when you do things that are not included in the five aspects above. For example, you might be watching too much TV. In such a case, it’s the idleness that’s overweight.
3. Find ways to reduce the overweight aspects.
Next, you need to find ways to reduce the resources taken by the overweight aspects. Think about how you can spend less time there. Think about how you can become more efficient.
There are three actions that you could take:
- Set boundaries. For example, you might decide that you won’t work past 6 p.m every day. Such a boundary will push you to become more efficient at work because your time is now limited.
- Eliminate. Decide not to do certain things. Say no to them. Use the 80/20 principle to focus only on the few important things
- Delegate. If you can’t eliminate something, find ways to delegate it to someone else.
4. Spend more resources on the weak aspects.
Now that you have freed up some resources, put them into the weak aspects.
The key here is to plan ahead what you are going to do. If not, your extra time might only be spent on idleness which is the default way of spending time for most people.
If the weak aspect is learning, for instance, think about how you are going to learn. You might want to buy a book and put it beside your sofa to remind you to read. You might even want to set an alarm to remind you to read.
Remember, a new behavior won’t happen automatically. You need to plan for it to happen.
5. Review your life regularly.
Just because you have rebalanced your life once doesn’t mean that it will stay balanced forever. Over time, things might go out of balance once again.
That’s why you need to review your ‘life portfolio’ regularly. Doing a weekly or monthly review is a good way to do that.
Rebalancing your life puts you in a position where you can live your life to the fullest.
Do you have tips on rebalancing life? Feel free to share them in the comments.
By the way, investing has always been a passion of mine. I’m currently working on an investing course and it’s going to be ready soon. Stay tuned!