Summer is here so it’s time for a mid-year financial checkup.
With longer days and warmer weather, finances might be the last thing on our minds right now. Before we put on our sun hats and hit the beach, there are a few important financial steps to take to meet important financial goals.
Here are nine financial steps to take mid-year:
1. Track your net worth
Tracking your net worth at least once a year provides valuable data. Imagine being able to look back to see your progress over the years in building wealth. Fortunately, a simple net worth statement isn’t difficult to create – simply make a list of your assets and liabilities on one page. To get started, here is a link to an online net worth calculator.
Of course, tracking can provide data points for you to make adjustments if you aren’t making the gains you’d like. If you haven’t created a net worth statement this year, take the time to do it now.
Financial Planner tip: Track your net worth at least annually. Day to day you may not notice drastic changes but looking back you can spot broader trends.
2. Increase your retirement savings
Increase your retirement savings percentage to at least any company matching contributions and then shoot for more. With the demise of pension plans, most professionals fund their retirement income through their employer’s defined contribution plans. This means we have to save as much as possible during our working years. In 2023, the maximum 401(k) contribution is $22,500 per year in salary deferrals and bumps up to $30,000 for those age 50 or older.
Financial Planner tip: If you aren’t at the maximum but can’t take a drastic drop in your paycheck today, simply increase your savings by one percent. Do this every year, and you’ll be surprised at how much you can save.
3. Pay off high interest debt
Credit card balances can easily grow especially if you use them for daily purchases to maximize rewards points. Interest rates on revolving debt can be upwards of 20% which can defeat the purpose. Review your credit card balances and either pay them off monthly as the bill comes due or make a plan to pay the balances down.
Financial Planner tip: If your credit card balances are high and you want to pay them off. Consider using the Snowball Method.
Here’s how it works:
- Make a list of all of your credit card balances, rates and minimum payments.
- Pay the minimum on all the cards except the one with the highest rate.
- Pay extra on that card and when it is paid off, redeploy that payment and any additional funds to the next one until all your cards are paid off.
4. Rebalance your portfolio
As you get closer to moving from the accumulation stage to the withdrawal stage in retirement planning, it’s even more important to make sure your asset allocation fits your risk tolerance. In periods of market volatility, portfolios can veer from the allocation investors set up originally.
Rebalancing refers to reestablishing the weighting of the asset allocation back to the investment plan. Review your asset allocation at least once a year and make any changes needed at that time.
Financial Planner tip – Set your rebalancing on autopilot. Your 401(k) provider may have a rebalancing service available, so it is automatically done for you as regular intervals such as quarterly.
5. Start a gift/holiday savings account
People often overspend during the holidays causing them to play catch up at the start of the year. If this applies to you, break that cycle this year. With the holidays around the corner, start saving now in a separate account for holiday travel, gifts and parties.
Determine the amount you usually spend for holiday gift giving and simply divide that number by the number of months until November and set aside money monthly in a savings account. By year end, you’ll be flush with cash and won’t need to use credit cards to celebrate the season. Start again in January.
Financial Planner tip – Opening additional bank accounts seems to add complexity. In reality, if used correctly, can help you stay organized.
6. Determine future expected but irregular expenses
A common budgeting mistake is to ignore expected expenses that don’t come in regular intervals. Since these expenses aren’t monthly, they often aren’t accounted for in a monthly budget. Expenses such as an expensive car service may be needed once a year and is dependent on mileage, not a specific date. When this type of expense hits, a savings account is depleted forcing consumers to use credit cards.
To prevent this vicious cycle, make a list of expected expenses that aren’t part of a regular monthly budget. Estimate cost of expenses such as vehicle service and repairs, home repairs and maintenance, vacations, back to school shopping, gifts, and out-of-pocket property taxes. Determine the annual amount needed and divide by 12 months and add that amount to your monthly budget.
Financial Planner tip: Some people set up a separate savings account for irregular expenses and others simply pad their checking account to prepare for these future expenses. Do what works for you.
7. Set up your annual health checkups
As the saying goes, “Health equals wealth.” Keep up with your annual physical and other tests such as a mammogram. Preventing illness and catching health issues early are vital to longevity. Set up those appointments between now and the end of the year.
Financial planner tip – To enjoy your life and future retirement, get in the best physical shape possible.
8. Map out your charitable giving plan
If you are charitably inclined, proactively set up a tax efficient charitable giving plan. If you are over 70 1/2, consider giving to your charity directly from your IRA using a Qualified Charitable Distribution.
Financial planner tip: Consider how you give not just how much. For example, gift highly appreciated stock to charity as part of your gifting strategy.
9. Update your financial plan
Review your financial plan with your financial advisor early enough to take any necessary action before year end. Review your net worth statement, savings percentage and goals. Have any of your goals changed? Are you still on track to replace your income in retirement? Review your investment allocation and make any needed adjustments.
Many people focus on their personal finances in the New Year but then don’t check in regularly to stay on track. A mid-year financial checkup is vital to your personal financial health because as many people experience, the months fly by as we enjoy our lives.
If we don’t check our progress and take action, another New Year will roll around before we know it.
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