Is It Time For Your Mid-Year Financial Check Up?
June 24, 2013Summertime is officially here and things around my house are just as hectic as ever. With all of the upcoming events my kids have on the schedule like summer camps, swim lessons, dance lessons, soccer camps, reading lists, vacations, and staycations, we have to do a serious balancing act as parents. (When I say “we,” I actually mean my wife, Heather, because I admit that she is the master organizer in our household.)
But there is one thing on our annual calendar that I do have a firm grasp of and that’s our mid-year financial checkup. Yeah, I know it’s not the most glamorous and exciting event to put on the calendar but it’s essential to make sure our financial plan is on track to meet our life goals! So, in the middle of your busy summer schedule, it’s important that you take the time to review your financial plan and assess your progress. Here are some fairly simple things that you can include on your checklist to enhance your own financial health:
Review your tax withholding. If you’ve had any changes in your income or expenses so far this year, you may need to adjust your income tax withholding. This is also important if you’ve received a large tax refund in the past and you’re tired of loaning your money to Uncle Sam with zero interest in return. You may enjoy the forced savings program right now, but with a little discipline and simple changes to your Form W-4 you can put that money from your upcoming paychecks to work for you on. For a calculator you can use to figure out your recommended tax withholding, visit IRS.gov.
Create a plan to build (or rebuild) your savings account. I’ve worked with many people recently who’ve confirmed Murphy’s Law and have heard about some major life changes and challenges that have required some type of emergency savings in their lives. For many people, 3-6 months of basic living expenses is sufficient for an emergency fund. For others (especially those in an uncertain job situation or with concerns about the economy), an emergency fund of 6-12 months’ living expense may be more prudent. Just be sure that you pay off any high interest consumer debt before you start ramping up your savings. If paying off debt is a current priority, you should at least maintain a starter emergency fund of around $1-2k even if you are in debt reduction mode.
Establish a separate account for irregular expenses. While it may be too late to save for that summer vacation, it’s not too late to start planning for the holidays. In fact, one effective money management technique is to create a separate account for those expenses that don’t occur on a regular basis but still deserve a place in your personal spending plan. For more information on setting up a planned spending account system, check out 5 Steps to Successful Money Management.
Review your account subscriptions and memberships. My family has recently started taking a regular inventory of the different account subscriptions and memberships that we maintain. Each account faces the same question at least once every six months – are you worth keeping? If the answer is no, we either cancel our subscription or find a more useful and cost effective alternative.
So this summer it looks like we’ll renew memberships at a local children’s museum and aquarium. We will also keep our Netflix and Spotify accounts because we enjoy streaming movies and music at home. But gym memberships, magazine subscriptions, college hoops season tickets, satellite tv and radio are long gone because they simply weren’t being used (insert visual image of money being thrown away here). Little changes can make a big difference over time. Try putting every expense that falls into the wants or lifestyle choice category to the test as you update your personal spending plan (which at least needs a semi-annual review as well).
Verify your debt reduction plan is on track. I’ve conducted numerous webcasts during the first half of the year and debt is still one of the top obstacles holding people back from reaching their important goals like retirement or sending their kids to college. In fact, our latest research indicates that less than 60%of employees are comfortable with the amount of debt (non-mortgage) that they have. This is an improvement over previous years, but a sign that many households are still in need of a plan to reduce or eliminate high interest (holding you back from reaching more important life goals) debt.
If you are working through debt issues, check out our Debt Blaster Calculator to see if you are on track to get those credit card balances and other creditors out of your life. If you don’t have a plan, your mid-year checkup provides you with a good starting point. Check out these 5 Steps to Getting and Staying out of Debt for some tips on creating a game plan.
Re-balance your investment portfolio. Most financial professionals recommend re-balancing your portfolio on at least an annual basis. If you haven’t reset your target asset allocation for current and future investments, the middle of the year is a convenient time to do so. Your retirement account at work may even have an automatic re-balancing feature to make this process easier in the future. While you’re looking at your retirement portfolio, you can also review your answers to important questions about the status of your own retirement plans.
Adapt to major life changes. Has anything significant changed in your life that has an impact on your financial plan? Changes could include moving, the birth of a child, marriage, divorce, unexpected expenses, or increases/decreases to your income. It’s important to keep your financial plan up to date. Remember, financial planning is an ongoing process so whether you need to update your estate plan, change beneficiaries on retirement accounts, increase your life insurance coverage, or establish a plan to get out of debt, it’s always smart to adapt your plan to life’s changes.
As summertime kicks into full gear, be sure to fire up those barbecue grills, load up those cars and trucks with suitcases, enjoy the mountains, lakes, beaches and other beautiful spots in our country and beyond. Just be sure to do a little mid-year financial check-up at some point this summer. It will definitely add some peace of mind both this summer and in future years simply knowing that you’re doing everything possible to try and stay in solid shape financially.