Assessing Your Finances Midyear: What Requires Improvement?

Conduct a midyear review to navigate your finances

As June and July roll in, it’s the perfect time to take a thorough look at your financial standing, whether for yourself or your family.

Financial professionals often advocate for the Midyear Financial Health Review, a practice endorsed by planners, portfolio managers, and educators alike.

The aim is straightforward: spot budget discrepancies, reassess goals, and implement necessary changes before the last quarter hits.

Check out our comprehensive guide to conducting a successful analysis right now!

Budget Assessment: Understanding the Figures

The first task in any financial evaluation is to compare your original plan against the actual figures from the first half of the year.

A strong budget should reflect harmony among income, expenses, savings, and investments.

Key aspects to evaluate

• Monthly savings rate: The proportion of income saved.
• Debt-to-income ratio: essential for evaluating borrowing capacity.
• Free Cash Flow: Remaining funds post necessary expenses.
• Emergency fund: Coverage for how many months of fixed costs? Ideally 3 to 6 months.

If your savings rate dips below 10% or over 40% of your income goes to debt, it’s a red flag.

Spending Categories: Where’s the Leak?

Utilizing personal finance tools like Mint, YNAB (You Need A Budget), Monarch Money, or tailored spreadsheets can help analyze spending by category in detail.

This enables you to pinpoint overspending areas, like dining out, subscription services, or seasonal travel and leisure expenses.

Given the inflation we’ve faced recently in the U.S., adjusting spending habits is crucial for maintaining your purchasing power and financial stability.

Debt: Refinance, Settle, or Hold?

The fluctuating interest rates, particularly due to decisions made by the Federal Reserve, have a direct impact on personal loans, mortgages, and credit cards.

Suggested approaches

• Consider debt consolidation if rates drop;
• Speed up repayment on high-interest debts over 18% APR;
• Steer clear of revolving debts during financial downturns.

To maintain a healthy credit score, keep your credit utilization ratio (the amount of credit used compared to the available limit) below 30%.

Investment Overview: Allocation and Results

Even those who are risk-averse should conduct a portfolio check every six months. Factors like geopolitical changes, Fed actions, labor market fluctuations, and economic cycles impact financial assets significantly.

Key evaluations

• Rebalance your portfolio to match your risk level;
• Assess performance against benchmarks;
• Ensure your currency exposure fits the current economic landscape;
• Confirm that your asset diversification aligns with your profile.

If you have a 401(k), IRA, or brokerage account, take this midyear opportunity to review your contributions and any corporate matching options that may be available.

Financial Objectives: Status and Changes

Goals set at the year’s start often falter by midyear. Aspirations like purchasing a home, clearing student debt, or traveling require plans that can adapt.

It is advised to categorize goals as follows:

• Completed
• Ongoing
• Put on hold or dropped

More crucial than sticking to initial goals is having the adaptability to revise plans as circumstances shift. This reflects financial growth.

Tax Strategies for Proactive Adjustments

If you’ve either overpaid or underpaid your taxes earlier in the year, it’s crucial to tweak your withholding to steer clear of any surprises come next April.

Think about contributing to tax-friendly accounts like HSAs or FSAs. It’s a good time to reassess available deductions and credits, especially with any significant changes in family, work, or residency.

Financial Protections and Insurance

Maintaining financial health involves more than just numbers. The middle of the year is a perfect opportunity to review your insurance policies, dental plans, and disability coverage, as well as to update your beneficiaries.

Given the rising costs of healthcare in the U.S., switching to a more cost-effective health plan (like an HDHP with HSA) can lead to savings and tax advantages.

Planning Ahead: Retirement and Estates

Taking stock midway through the year also invites you to consider the long-term future. Reassess retirement forecasts, update estate planning documents, and calculate your net worth.

If needed, book an appointment with a Certified Financial Planner (CFP) for tailored advice and a comprehensive financial outlook.

Conducting a midyear financial checkup isn’t just wise; it’s a proactive step to prevent potential losses down the line.

Minor adjustments now—whether in asset distribution, managing expenses, or renegotiating debt—can have a significant impact by the end of the year.

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