Midyear financial checkup – it’s time
Every time this part of the year, a common expression is heard: The year is half over already? For some, it brings the painful realization that they are still behind on their goals for the year. If that’s you, it’s time to step up the effort, especially with your finances.
Begin by pulling out the goals you wrote down in January. You did write them down, right? Goals are more likely to be achieved when written. Next, assess areas for improvement, such as debt not getting paid down, expenses not being kept within budget, or income not rising as expected.
Debt is a big priority. Increase your efforts to reduce balances on the loans with the highest interest rates. All other financial goals are impaired when money goes out the door to pay high interest rates. Only if your rate is about 3 percent or less should you consider moving debt reduction down your list of priorities.
Once debt is in control, evaluate how any changes this year caused you to adjust. This includes the birth of a child, a new job, a layoff, a divorce or another life-changing event. These all cause changes in income taxes. Visit with your human resources department or CPA to calculate any change you need to make in withholding taxes or estimated tax payments. You don’t want to bust your budget by overpaying or underpaying Uncle Sam.
Another area to address is your savings. Are you still saving as much as you set out to this year? Have you had to raid any emergency savings that now need to be replaced? With the job market still fragile, it’s important to have backup funds available. Those funds can be kept in the bank, but for some people, stock and bond investments may be considered a resource in emergencies. This prevents you from having too much money earning little interest.
Once you have today’s financial issues corrected, take a look at your retirement accounts. Do you still need to contribute more? Is it more affordable now for a Roth IRA conversion? Evaluate your employer’s 401(k) account to make sure the investments are still appropriate or if new investment choices are available. If you turned 50 this year, you can also save $6,000 in your IRA, up from $5,000, or $22,000 in your 401(k), up from $16,500. Increasing your contributions could also reduce your taxes.
If you have a taxable brokerage account, give your investments a checkup to make sure they still fit in your portfolio or whether they are performing poorly. Selling at a loss also has a tax-reduction benefit.
Your finances are constantly changing, so review them regularly or hire a financial planner to help you monitor your goals. It’s as important as an oil change for your car.