Mid-Year Is A Good Time For a Financial Checkup

 In Cash Flow & Spending, Estate, Insurance, Investments, News, Retirement, Taxes

Unbelievably, we are more than halfway through 2021! As life emerges from the pandemic to a “new normal,” (and we are not sure like everyone else on what the “new normal” will be), a mid-year financial checkup may be more important than ever this year. For this blog posting, we want to share some thoughts and things you can do to make sure that your financial situation continues to be on the right path.

Review And Reassess Your Financial Goals

At the beginning of the year, you may have set financial goals geared toward improving your financial situation. Typical goals are saving more, spend less, and/or reduce your debt. For a successful financial plan, you need to focus on what you can control, such as the items just mentioned. Also, when it comes to reaching your financial goals, it is not necessarily about how much you save, it is more about how much you spend. How much progress have you made? Are you tracking your progress in meeting your goals? If your income, expenses, and life circumstances have changed, you may need to rethink your priorities and update your financial plan. Review your net worth and account balances to determine whether you need to make any changes to keep your financial plan on track. You should also review your investment plan and related asset allocation decisions (see the comments later in this blog posting on asset allocation), to make sure your portfolio is properly structured.

Take a Look at Your Taxes

Completing a mid-year estimate of your tax liability may reveal new tax planning opportunities. You can use last year’s tax return as a basis, then factor in any anticipated adjustments to your income and deductions for this year. Check your withholding from wages, especially if you owed taxes or received a large refund. Doing that now, rather than waiting until the end of the year, may help you avoid owing a big tax bill next year or overpaying taxes and giving Uncle Sam an interest-free loan. You can check your withholding by using the IRS Tax Withholding Estimator at IRS.gov. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.

Also review your contribution rate to your employer retirement plan and if you have not increased the contribution rate this year, now is the time to do so. We recommend that individuals increase their contribution rate each year, until they get to the maximum allowable contribution amount for the employer plan – see some additional comments in the section below on retirement savings.

If your employer has a HSA (Health Savings Account), we recommend that you contribute to the HSA and if at all possible, pay for any medical expenses incurred from other funds. This will allow the HSA balance to grow and compound and the funds should be invested in something other than a cash account. Keep copies of medical expenses paid from other funds as under the current tax law, you can reimburse yourself in a future year for the medical expenses.

Check Your Retirement Savings

If you’re still working, look for ways to increase retirement plan contributions. As mentioned above, you should increase the contribution rate each year. For example, if you receive a pay increase this year, you could contribute a higher percentage of your salary to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457(b) plan. For 2021, the contribution limit is $19,500, or $26,000 if you’re age 50 or older. If you are close to retirement or already retired, take another look at your retirement income needs and whether your current investment and distribution strategy will provide the income you will need. A financial plan is recommended if you are within five years of your retirement date.

Evaluate Your Insurance Coverage

What are the deductibles and coverage limits of your homeowners/renters insurance policies? How much disability or life insurance coverage do you have? Your insurance needs can change over time. As a result, you’ll want to make sure your coverage has kept pace with your income and family/personal circumstances. The cost and availability of life insurance depends on factors such as age, health, and the type and amount of insurance purchased.

There are low cost or commission free insurance products available, but individuals typically do not know this because a commissioned agent will not recommend these policies. Working with a fee-only advisor like River Capital Advisors (RCA) provides access to these low-cost products and RCA does not charge any commissions or receive any form of sales-related compensation for products acquired from the low cost or commission-free carriers that we work with.

What is Your Asset Allocation?

Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. We start our conversation with individuals by talking about a globally diversified portfolio. There is no “free lunch” in investing, but a properly diversified portfolio is as close as it gets to a free lunch.

Having a diversified portfolio means that it will not perform the best every year or the worst and that is the point. A globally diversified portfolio generally results in exposure to investments that do well in a given year, exposure to investments that perform in line with history and exposure to investments that did not do well in a given year. A disciplined rebalancing process will help in selling portions of the portfolio that performed well and buying into the portions of the portfolio that did not do well (i.e. sell high, buy low).

Ask Questions

Finally, you should also ask yourself the following questions as part of your mid-year financial checkup:

  • Do you have enough money in your emergency fund to cover unexpected expenses?
  • Do you have money left in your Flexible Spending Account?
  • Do you have access to a Health Savings Account (HSA)?
  • Are your beneficiary designations up to date?
  • Have you checked your credit score recently?
  • Do you need to create or update your will?
  • When you review your portfolio, is your asset allocation still in line with your financial goals, time horizon, and tolerance for risk? Are any changes warranted?

River Capital Advisors is a fee-only, SEC registered investment advisory firm that provides a range of financial services for its clients. RCA is a member of The National Association of Personal Financial Advisors and the Garrett Planning Network. We provide individuals options in how they want to work with RCA to help them in all areas of their financial life, as discussed in this blog posting. RCA is also affiliated with the Jacksonville CPA firm of Smoak, Davis & Nixon, LLP (SDN). The combination of RCA and SDN, along with being a fee-only investment advisor and a financial fiduciary to our clients makes RCA the exception and not the norm in the financial services industry.

Please contact us to have a conversation with one of advisors to learn how we can help you and your family in all areas of your financial life.

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