10 steps to take stock of finances mid-year to ensure financial management goals are not deviated
**Interviewer:** As we find ourselves halfway through the year, how can individuals assess their finances to stay aligned with their financial goals?
**Expert:** Life is full of uncertainties and sometimes those can impact our finances, leading to disruptions in our financial plans. Conducting regular financial check-ins can help identify issues early on and make necessary adjustments. Mid-year and year-end are ideal times for this kind of evaluation.
For a mid-year financial review, experts recommend following a ten-step process:
**Step 1: Assess Your Budget**
Establishing a budget is crucial for a mid-year financial check-up. Experts suggest reviewing your regular expenses to identify areas where you are spending more than planned or where you’re under-budgeting. Pay special attention to any income changes that may impact future budgeting.
**Step 2: Plug Budget Leaks**
Through your budget review, identify any unnecessary expenditures such as impulsive purchases, subscriptions, or other recurring expenses. This is a great time to correct those spending habits.
Chad Rixse, a wealth advisor at Forefront Wealth Partners, emphasizes that reviewing your budget helps you understand your essential living expenses and take proactive steps to reduce financial risks. This could include paying off credit card debt and cutting back on discretionary spending, such as memberships and infrequently used streaming services, ultimately aiming to reduce overspending.
**Step 3: Ensure Emergency Funds Are in Place**
Having an emergency fund is essential.
Marcos Rosenberg, head of Marcus Deposits & Marcus Invest at Goldman Sachs, points out that life’s unpredictability makes having an emergency fund a vital safety net. Therefore, it’s important to check mid-year whether you have enough saved up, ideally aiming for three to six months’ worth of living expenses—the more, the better.
**Step 4: Increase Retirement Contributions**
During your mid-year review, it’s important to evaluate the progress of your retirement savings to ensure you’re on track to retire when you plan. If you’ve received a recent promotion or raise, consider increasing your retirement contributions. If you’re over 50, you can contribute an extra $7,500 to your 401(k) plan and an additional $1,000 to your IRA.
**Step 5: Review Your FSA or HSA Accounts**
If your employer provides a Flexible Spending Account (FSA), make sure to check your benefits and usage. Some employers do not allow you to roll over any leftover funds into the next year, so it’s best to confirm the details with HR to maximize your benefits.
Regarding Health Savings Accounts (HSA), take the opportunity to contribute up to the annual limit—$4,150 for individuals and $8,300 for families in 2024. The great thing about HSAs is that the funds can roll over year to year, regardless of your employment status.
**Step 6: Examine College Savings and Student Loans**
For parents saving for their children’s college, it’s wise to monitor how much you’ve contributed and update any new forecasts regarding college expenses as your child approaches adulthood. If you haven’t started saving, now is the time to evaluate options like tax-advantaged 529 plans.
For those in repayment on student loans, mid-year is a good time to assess your progress, ensuring you’re not falling behind. If feasible, consider allocating extra funds to pay down student debt.
**Step 7: Manage Debt and Prioritize Repayment**
If you’re focused on becoming debt-free, this mid-year review is the perfect time to craft a repayment plan. Rosenberg suggests including debt repayment in your monthly budget to ensure you have the necessary funds every month.
The two most popular debt repayment strategies are the “snowball” method, which focuses on paying off smaller debts first, and the “avalanche” method, which prioritizes debts with the highest interest rates. Sean Fox from Achieve believes both methods are effective, with the snowball method being particularly motivating for those who enjoy seeing quick wins, while the avalanche method saves more on interest over time.
**Step 8: Review Your Credit Report**
If you’re planning to start a business, buy a home, or apply for credit cards, having a good credit score is crucial. A mid-year check on your credit report can help you cultivate sound financial habits and maintain a strong credit score. You can access a free credit report at Annualcreditreport.com to check for signs of identity theft or any discrepancies.
Additionally, consider taking steps to lower your credit utilization or enroll in programs like Experian Boost to track bill payments that could enhance your credit score.
**Step 9: Organize Tax Documents**
Being organized with your tax documents is incredibly helpful.
Rixse recommends keeping records of any tax-deductible expenses, such as out-of-pocket medical costs, mortgage interest, and charitable contributions. It’s best not to wait until tax season to gather these documents, as this can lead to mistakes or missed opportunities.
**Step 10: Update Your Estate Plan**
Estate planning lawyers typically advise clients to review and update their estate planning documents every five years or during significant life events, such as a death, birth, or marriage. This includes reviewing wills, guardianship instructions for minor children, advance healthcare directives, and powers of attorney.
