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It's Summertime - Not a Bad Time for a
Midyear Financial Checkup
The weather's great, so staying inside with your finances
probably doesn't sound like a very entertaining option. But a
midyear review of your tax situation, retirement and spending
issues can be far more valuable than the rushed attempt most
people make at the end of the year — or when it's too late at tax
time.
Summer's actually a good time to do this task because there's
still enough time to correct lapses in savings, spending or tax
planning. Here's what most people should cover:
Retirement savings: Given the state of the economy,
it's not a bad time to review your retirement funds and your
current investment allocation. If you are on schedule to max out
your contributions to your company retirement plan this year,
great. But don't forget to check your existing IRAs and other
retirement accounts to see if you'll have enough cash on hand to
contribute the maximum in each account by their respective
deadlines next year.
Health and health insurance: Increasingly, what we pay
for health insurance will be tied to the state of our health.
While the weather is good, commit to a plan to walk or hit the
gym a specific number of hours a week. Many insurers reset
premiums at mid-year in a rising cost environment, so make sure
you're ready to switch plans or negotiate different coverage if
necessary during open enrollment in the fall.
Taxes: If you got a sizable refund in April or found
it necessary to empty savings to pay Uncle Sam, it's definitely
time to reassess what you'll owe at tax time next year. Also, if
you think you'll have some losing stocks in your taxable
investment accounts, keep an eye on those in case you'll need to
offset gains in your portfolio at the end of the year.
Spending: Either on your computer or on paper, take
the time to figure out where you're money's going. A look at the
last six months of spending may reveal opportunities to reduce
spending and redirect money toward more necessary goals. Also,
take a look at such things as gym memberships, magazines that
are piled up and coffee expenses. If you're not using these
things, you can probably live without them. Doing this exercise
can identify a surprisingly large amount that's unaccounted for
that can be redirected to debt payment, savings and investments.
Reserve fund: Most financial experts encourage you to
have between three and six months of living expenses in an
emergency fund. If you don't have that minimum, go back to your
spending review and see where you can start socking money away.
College savings: If you are saving for your child's
education or your own, check to see if you're on track with the
goals you made for the year. It's also a good idea to read the
latest news on financial aid since schools change their
financial aid policies annually. Even if your kid's still in
grade school, it's a good idea to learn as much about college
financial aid while you've got plenty of time to learn.
Special goals: If your car is suddenly looking like it
will need to be replaced or if this might be the last year for
your furnace, see if you can direct more money into a reserve
fund to cover replacement costs or at least a heavy down
payment. If there's a vacation you want to take by the end of
the year or a special household purchase you want to make, focus
on the cash you'll set aside to make that happen. Of course, if
you have credit card debt rolling over from one month to the
other, maybe that should be your initial focus.
Credit: If you haven't set a schedule for receiving
your three credit reports throughout the year, do it now. You
have the right to get all three of your credit reports — from
Experian, TransUnion and Equifax — once a year for free. You can
do so by ordering them at www.annualcreditreport.com.
By staggering receipt of each of your credit reports at different
points in the year, you'll get a continuous picture of how your
credit picture looks. Also, you'll have the opportunity to focus
on possible errors in a single report, which will give the other
two credit agencies time to update their files.
June 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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