Midyear Financial Wellness: Areas for Improvement?

Perform a Midyear Financial Checkup to Navigate Your Fiscal Journey

As June and July roll in, it’s the perfect moment to thoroughly assess your personal or family finances.

The Midyear Financial Health Review is a widely advised practice among financial experts and educators.

The objective is straightforward: pinpoint budget discrepancies, reevaluate goals, and implement necessary changes ahead of the fourth quarter.

Check out our detailed guide to conducting an effective financial analysis today!

Budget Evaluation: Understanding the Financial Landscape

Start your financial assessment by contrasting your initial budget with the actual figures from the first half of the year.

A sound budget should reflect harmony among income, expenditures, savings, and investments.

Key Indicators to Examine

• Savings rate: Percentage of income saved.
• Debt-to-income ratio: Analyzes borrowing capacity.
• Free Cash Flow: Remaining funds after expenses.
• Emergency fund: Months of expenses covered?

Should your savings rate dip below 10% or if over 40% of your income goes to debt, it’s time to take notice.

Expenditures by Category: Where’s the Leakage?

Employing personal finance tools like Mint, YNAB, Monarch Money, or tailored spreadsheets allows detailed tracking of spending categories.

This enables the identification of high-spending areas such as dining, subscriptions, or seasonal travel.

Given the rising inflation in the U.S., refining your spending habits is essential to sustain purchasing power and overall financial stability.

Debt: Refinance, Pay Off, or Freeze?

The fluctuating interest rate landscape, particularly influenced by decisions from the Federal Reserve, has a direct impact on personal loans, mortgages, and credit cards.

Suggested strategies

• Consider consolidating debt, especially if rates drop;
• Prioritize paying off high-interest debts, particularly those with an APR over 18%;
• Steer clear of revolving debt during financial uncertainty.

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

Investment Review: Allocation and Performance

Even those who invest conservatively should conduct a portfolio review twice a year. Factors like geopolitical shifts, Fed actions, labor market fluctuations, and economic cycles significantly affect financial assets.

Key evaluations

• Rebalance your portfolio to ensure it matches your risk tolerance;
• Assess performance against benchmarks;
• Check if your currency exposure aligns with the current economic climate;
• Ensure your assets are diversified appropriately for your profile.

If you have a 401(k), IRA, or brokerage account, midyear is a great time to review contributions and corporate matching options, if available.

Financial Goals: Progress and Adjustments

Goals set at the start of the year often falter by the end of the first semester. Aspirations such as homeownership, clearing student debt, or travel necessitate flexible planning.

It’s advisable to categorize goals as

• Achieved
• In progress
• Abandoned or postponed

Being able to adjust your goals based on changing circumstances is more crucial than sticking rigidly to your original plans. This reflects financial maturity.

Tax Strategies to Stay Ahead

If you miscalculated your taxes earlier this year, adjusting your withholding is crucial to prevent surprises next April.

Think about putting money into tax-friendly accounts like HSAs or FSAs. Also, check for deductions and credits you might qualify for, especially after significant life changes.

Insurance and Financial Safeguards

Financial wellness encompasses more than just numbers; it also involves prevention. The middle of the year is a great time to assess your insurance policies, dental coverage, and disability plans, along with updating beneficiaries.

With healthcare costs on the rise in the U.S., switching to a more budget-friendly health plan (like an HDHP with HSA) could save you money and provide tax advantages.

Looking Ahead: Retirement and Estate

Your midyear evaluation should also include long-term planning. Review your retirement goals, update your estate plans, and calculate your net worth.

If needed, arrange a session with a Certified Financial Planner (CFP) to gain a comprehensive and tailored perspective.

Conducting a midyear financial checkup isn’t just a good habit; it’s a proactive step to prevent future financial setbacks.

Making small changes now—whether it’s tweaking asset allocations, managing spending, or renegotiating debt—can lead to significant results by the end of the year.

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