Financial check-ins aren’t something that should happen only once a year. Life happens: your goals, priorities, taxes, and markets shift over time. A mid-year assessment, whether with or without a financial advisor, gives you a chance to revisit your overall financial picture, determine whether your plan still reflects your current circumstances and identify where adjustments may be needed.
Many people do not review their finances until the end of the year, sometimes when it is too late to make certain changes. A mid-year check-in can help you stay ahead of potential issues, but where should you start? While everyone’s financial situation and goals are unique, there are a few core topics that can serve as a good foundation for ensuring you are still on track.
Review Your Budget
Mid-year is a great time to sit down, look at your budget, and identify areas where spending may have increased or decreased. While it may be the case that you are overspending in certain categories, you may also be underspending elsewhere, possibly allowing you to have more cash than budgeted. Such a discrepancy may allow you to increase your savings, invest, or put it towards another goal.
Additionally, a mid-year budget evaluation allows you to determine if your budget needs to be adjusted as a result of any major life events or unexpected expenses. For example, your car breaks down and you need to get a new one immediately to keep commuting to work. Or perhaps your water heater quits and requires costly repairs. The funds spent from your savings account may need to be replenished before funding other areas of your budget.
That could mean temporarily allocating cash to savings instead of increasing allocations for retirement, cutting back on dining out over the next few months, shopping for better deals when grocery shopping, and other mindful cost-cutting measures.
Evaluate Your Cash Flow
Reviewing your budget is important, but it is equally important to understand how money is flowing in and out of your accounts throughout the year. Your income may have changed over the course of the year, giving you more room to increase savings for the remainder of the year. Or, if you know you will be receiving a bonus later in the year, you could have more freedom to use some of those funds for other goals, like a year-end vacation.
While these are only examples, there are a variety of scenarios that can take place, drastically changing your cash flow, for better or worse.
Checking Progress Toward Savings Goals
You may have different savings ‘buckets’ already in place, such as an emergency fund, vacation fund, home purchase fund, education fund, etc. Mid-year is an ideal time to check in on these goals to see if you are ahead of, behind, or on track of predetermined benchmarks. You may also find that your goals are completely different now than at the start of the year, pushing you to readjust your contributions to your buckets entirely.
Review Retirement Contributions
Retirement contribution reviews are one item that should not wait until the end of the year. Delaying until December can leave you with fewer opportunities to course correct and less time to adjust and catch up.
Moreover, contribution limits and eligibility should also be reviewed with a financial advisor or tax professional throughout the year. For example, an unexpected rise in income may affect your ability to make direct Roth IRA contributions. Therefore, on top of adjusting your budget, you may consider a traditional IRA depending on your circumstances, which may reduce your taxable income and allow your assets to grow tax-deferred.
Another example worth noting involves employer matching of retirement contributions. If your employer offers a 401(k) match, a mid-year look can help confirm whether you are contributing enough to receive the full match. If the match has increased, or if your budget allows for higher contributions, adjusting your contribution rate may be worth considering. It is also important to confirm that contributions are actually being invested, since leaving funds uninvested could limit long-term growth potential.
Review Tax Planning Opportunities
Tax planning is another area where timing matters. When you examine your taxes mid-year, you have more options on the table to better plan to adjust your withholding and review estimated tax payments, charitable gifting strategies, and more. Again, everything we’ve discussed so far ties together, which is why a mid-year touch base is typically beneficial for many individuals and families.
Revisit Your Investment Allocation
Throughout the year, some funds within your portfolio will increase and decrease disproportionately, causing your allocation to drift from its target levels. While this doesn’t sound like a big deal, over time, it can make a big difference. For example, you could start with the intent of a moderately risky allocation, such as being invested in 60% equities and 40% in cash/fixed income. Over time, your allocation could drift to 80% equities and 20% in cash/fixed income, which may be more risk than you originally intended.
This can be especially important in retirement, when you may be relying on your portfolio to help fund living expenses. If your allocation has become more aggressive than intended, a market downturn could have a greater impact at the exact time you need to draw from those assets.
Additionally, maybe your risk tolerance has changed, and you are not as comfortable with the level of risk you were taking on, even before the drift.
Review Life Changes
Life happens. Significant changes can happen, which is why it is important to consider the financial implactions of them when they crop up. Maybe you got married, had a child, changed jobs, retired, received an inheritance, or experienced a health-related event. Any of these things, and many more, may require adjustments to several aspects of your financial plan, including many of the topics discussed above.
Further, if you recently welcomed a child, it may prompt you to begin thinking about education savings, life insurance, or possibly updating your beneficiary designations. If you changed jobs, you may need to review your retirement plan elections, insurance coverage, and tax withholding. Maybe at the beginning of the year, you were focused on saving for a home, but now you are considering starting a new business. A mid-year review helps ensure your financial plan still reflects what’s most important to you today, not what was important six months ago.
Conclusion
A mid-year financial review does not need to be complicated. Often, a review of your budget, cash flow, savings goals, retirement contributions, and tax planning opportunities can be a great starting point, whether performed independently or with a financial advisor.
One of the biggest benefits of a mid-year review is recognizing how interconnected different areas of your financial plan can be. A change in income may affect your taxes, retirement contributions, savings goals, and cash flow all at once, making it important to periodically take stock your overall financial picture.
Small changes made today can also have a meaningful impact later when exploring your finances. Taking the time to revisit your financial plan can help ensure it continues to align with your goals and priorities.