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7 Essential Steps for a Mid-Year Financial Checkup

It has been a turbulent year with the ongoing covid-19 crisis, a war in Ukraine, high inflation, and a volatile stock market.

If your finances are in a different place than they were at the beginning of the year, you are not alone. Also, if you are getting closer to retirement, you need to make sure your finances stay on track.

These 7 essential steps for a mid-year financial checkup will help you adjust your spending, increase your retirement savings, evaluate your debt and investments, gather important documents, and prepare your finances for the following months.

Step 1. Review your current budget and monthly spending.

Take some time to review your budget and monthly spending.

Have you been sticking to your planned budget, or you are overspending in some categories? Your life may have changed since the beginning of the year, and the mid-year checkup is a perfect time to adjust your budget accordingly.

How to start?

Look at your credit card and bank statements, see what expenses could be avoided, and plan to cut them by the end of this year.

Make sure to account for major life changes or upcoming big expenses that may change your financial needs such as retirement, a job change, relocation to another state, or purchasing a vacation home.

Keep in mind, that balancing your income with your spending is the key to saving more money.

By adjusting your budget, you will avoid falling into the overspending trap. Nobody likes to do budgeting. But a budget is an important part of your financial well-being. Therefore, take the necessary steps to stay on top of your finances for the rest of the year.

Step 2. Evaluate your retirement savings.

Savings is the lifeline to financial security. And yet, many people do not put enough time into managing their savings.

Financial experts recommend saving 10 to 15 percent of your income. However, it is so easy to miss this target. After you have adjusted your monthly budget, check your monthly and annual savings rate.

The first step is to look at how your retirement savings has stacked up. Have you maximized your retirement plan contributions? If your income has gone up during the past 6 months, have you increased your retirement contributions?

If you have not this year, make it a goal to increase your contributions to retirement plans such as 401(k), IRA, and Roth IRA next year.

The important thing to remember is that retirement plan contributions allow you to save a lot of money on current taxes and not miss any employer contributions.

When you are a few years away from retirement, being short on retirement savings can be a problem. A mid-year checkup helps you reassess your monthly expenses so you can make necessary adjustments to your spending.

If you have set up your savings rate at the beginning of the year, you will have another 6 months to make up for the lost savings.

How to evaluate your retirement savings?

Make an inventory of all your retirement accounts.

If you are getting closer to retirement, it is important to make an inventory of all your retirement accounts balances and contributions. It helps to see how much you have saved and how much you can withdraw from your retirement savings.

First, make a list of every retirement account you have. The retirement accounts should include 401(k) or 403(b), IRA, Roth IRA, or Roth 401(k). Then add account balance and current contribution.

Second, review how much you contribute to your current retirement savings plan. Have you maxed out your retirement savings for this year?

The 2022 contribution limits are:

$20,500 for 401(k) retirement plans. And if you are age 50 or older, the catch-up contribution is an additional $6,500. So, you can save a total of $27,000.
$6,000 combined contribution for traditional IRA and Roth IRA. And the catch-up contribution for people aged 50 or older is $1,000. So, you can save up to $7,000 with your pre-tax money (IRA) and after-tax money (Roth IRA).

Even if you cannot max it out, see if you can increase your contributions even by 1 percent. Another option is to start reducing expenses in your budget, so you can put more money into your retirement savings.

Basics of Retirement Accounts

Step 3. Assess Your Debt.

The middle of the year is a great time to sit down and check your progress on paying down your debt.

A good piece of advice is to divide your total debt by your income. That ratio should get smaller over time as you reduce your debt. According to financial experts, your debt-to-income ratio should be zero by age 65.

Look at your mortgage, credit cards, car loans, or personal loans and make a list (if you don’t have one) of every single outstanding debt.

woman counting on calculator - a mid-year financial checkup

There are two strategic and popular methods to get out of debt faster.

The Avalanche method helps to reduce the debt that carries the highest interest rate. The Snowball method helps to get rid of debt with the lowest balance first, and then move on to the next lowest one.

If you are only 5 to 7 years before retirement, you should consider paying off all your debt before you retire including a mortgage. Getting into retirement with any kind of debt will put a significant burden on your lifestyle.

When you are working, you have years of earned income to pay a mortgage, credit card, student, or any other kind of loan. But once you retire, you will be living on a fixed income.

When you start living on a fixed income, it is hard to pay off debt if you need to pull big chunks of money from your savings. Although, big withdrawals from retirement funds could push you into a higher tax bracket.

To pay off all debt including a mortgage might not be realistic for everyone. However, the less debt you have, the better you are prepared financially for retirement.

Step 4. Look at your investments and rebalance your portfolio.

Things change all the time in the finance world, and it was no different in the last 6 months when the stock market was shifting.

We all noticed that it has been a volatile time for financial markets. If you have been afraid to look at your statements, it is time. A mid-year is a perfect time to look at your portfolio and review where your investments are.

Take the opportunity to review your asset allocation and make sure your portfolio is diversified and invested for growth.

You should have a mix of stocks, bonds, mutual funds, and other assets that fits your retirement goals. If the current market caused a shift in your portfolio, it needs to be corrected to maintain the diversification you originally planned.

If you do not automatically rebalance your portfolio, recent losses or gains may have pushed your asset allocation out of balance. Even though your portfolio has done well, you want to make sure you stay within your percentage goals.

It can be tempting to stay away from stocks to reduce the risk of losing money in your retirement funds. But stocks provide growth and investing for growth is important at this stage of your life. If you retire at 65 and spend 20 years in retirement, you need to have enough growth to make your money last that long.

You need to remember that a well-balanced portfolio will help you get through market downturns. Also, it will generate a retirement income to cover your living expenses.

How to Set Up Your Retirement Portfolio

Step 5. Check your emergency fund.

A solid emergency fund is helpful when financial troubles come your way. Most financial planners recommend having 3 to 6 months’ worth of living expenses to be tucked away.

The past two years of a global pandemic and current high inflation were hard on most of us. But these past years have shown how important it is to keep some money in a safe account, so you can cover your bills if your income stops.

It is a good idea to keep your emergency fund in a money-market account or other accessible account, so you know the money is right there if you need it.

Also, if you have depleted your emergency fund, make it a goal to re-build the fund in the next 6 months. One of the best things you can do in the remaining time of this year is to make sure you have an emergency fund.

Step 6. Check your estate planning documents.

Another essential part of a mid-year financial checkup is the status of your estate planning documents.

You should have the 4 essential estate planning documents: a will, a revocable living trust, a general durable power of attorney, and a health care proxy. If you do not have these documents, I recommend making an appointment with an estate planning attorney.

If you already have these documents, keep them up to date and make sure you have suitable executors, trustees, and guardians in place.

Also, make sure that the list of your beneficiaries is up to date as well.

If you have welcomed a grandchild to the family do not forget to add his/her name to the list. Additionally, if there has been a change in the family such as a marriage, divorce, or death, make sure to update your beneficiary list.

Step 7. Update your goals.

I encourage you to look at all your financial and retirement goals and see where you are.

Your goals might not be achievable if your life situation has changed. For example, if you plan to retire at 65, but you are short on retirement savings, you might have to continue working for a few more years.

Major life changes such as marriage, divorce or death, relocation, adjusting to new living arrangements, loss of job, etc. can have an enormous financial impact. A mid-year review can help you adapt your financial goals to reflect these changes.

Take some time to review your goals and determine if you are taking the necessary steps to achieve them. And if you ignored them for the first 6 months, now is the time to create a plan for the rest of the year.

You can create a new budget, reduce your expenses, increase your contributions, start reducing your debt, and a lot more.

Final thoughts

A mid-year financial checkup is a great strategy to help you stay on track with your financial well-being. It is easy to fall into bad spending habits, get off track with your budget, forget about your investments and ignore your financial goals.

But with a mid-year checkup, you can get a fresh start and set new goals. You still have plenty of time before the end of the year to reflect on your priorities and what you want out of life.

What is on your mid-year financial to-do checklist?

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6 Smart Ways to Make a Holiday Budget & Stick to It

by Maggie 4 Comments

a child in red dress decorates Christmas tree - holiday budget

The holidays are here, and you may have a lot of expenses coming up. There are so many fun things to spend money on during the holiday season.

The holiday season already started with Halloween festivities and shopping for home decorations, costume parties and bags of candies. But the big money spending holidays like Thanksgiving and Christmas are coming close.

According to the statistics, despite the covid-19 economic toll, consumers are still spending above the five -year average on gifts. In 2019 the average American spent around $900 per person on holiday gifts.

And according to a survey, American consumers took on an average $1,325 worth of holiday debt in 2019. That is a lot of debt to take on for holiday spending.

And, this doesn’t include other holiday spending such as food, decorations, and activities. There are also other expenses many people forget to budget for, like stamps, cards, shipping, etc.

If you don’t want to accumulate new debt during the holidays, you need to allocate some money for decorations, gifts, parties, and maybe travels. The best way to do that is to make a holiday budget and then stick to it.

In this post I want to share the smart ways to create a holiday budget, save money on holiday shopping and avoid getting into debt:

1. Set a holiday budget and know your limits

If you don’t want to accumulate new debt during the holidays, you need to make a holiday budget. Before you decide what you should spend money on, you need to figure out how much money you can spend. The smart way to prepare for holiday spending is to look at your basic budget spreadsheet.

First, look at your monthly take-home pay and then subtract your monthly expenses, and calculate what is left. The number on your spreadsheet or calculator is how much you can afford to spend for the holiday season without getting into new debt.

Now you know how much you can comfortably spend on things like clothes, gifts, parties or travels. Don’t forget to add all your other holiday expenses like:

Decorations
Food
Postage and shipping
Charitable donations
End of year tipping

2. Make a list of people

table decorated for Christmas dinner -holiday shopping

After setting up a budget for your holiday spending, the next step is to make a list of your friends, family members, co-workers, neighbors and assign a gift budget to each name. In addition to that, you can put on your list a few gift ideas for each person within your budget. Keep the assigned dollar amount within your budget. But leave a little extra wiggle room if numbers are not working.

You can use an Excel spreadsheet or a small notebook for a detailed list of your holiday spending, including names, gift ideas, the amount of money you can spend and even the ideas where to find the gift. Once you have these estimates and brainstormed the gift ideas it will be easier to see your limits and not deplete your wallet during the holiday season.

3. Do your research and find the best deals

One of the keys to smart holiday shopping is research. Doing research on the best deals is important. We are bombarded with sales promotions, special purchases, buy-one-get-one-free deals and more. You want to know when and where the best deals will be offered.

During the holiday season, retail stores are offering great deals. Before making any purchases, check prices at multiple stores. To save money, search and compare prices online before setting foot in a store. When you come shopping in a retail store, use your research information and take advantage of the deal if you see one.

Many people prefer to shop online these days and that number grows with every year. So, if you want to skip the store and shop online check out a few deal-oriented websites:

Retail Me Not

Deal Hunting

Hot Lowest Price Deals w/ Free Shipping

The benefits of shopping online are not limited to saving on gas and parking fees. Let’s face it: very few of us enjoy holiday shopping. Sometimes it’s very hard to find pleasure in heading out to find gifts for our loved ones and dealing with crowded malls, long lines, and pushy shoppers. I found it easier to shop online in the comfort of my home day or night. And don’t forget to look for free shipping offers, if you plan to order online.

If you travel, many online websites offer great gift selection, and your items can be sent to your travel destination. That means you won’t have to worry about traveling with bulky presents.

4. Start shopping

table with women hands working on computer w/ holiday decorations - holiday budget

You set up a holiday budget, you made a list and have done your research. Now it’s time to start shopping with your list in hand. It’s a good idea to start shopping early so you can get the best prices. If you do last- minute holiday shopping, very often you will risk paying much higher prices.

Make sure that you keep a track of your spending and stay within your budget. Use the same excel spreadsheet or a notebook with names, gifts and price ideas for tracking.

I would recommend adding a column to your spreadsheet and name it “planned spending” and “actual spending.” Total up “planned spending” to see how much you can afford to spend over the holidays. Then keep adding the cost of gifts to your “actual spending” column. This way you will keep track of your spending. You should cut back or limit gift items when you see spending more and getting out of your budget limit.

Another smart way to save money during the holiday season is to search your home for the ribbons, wrapping paper, holiday cards, decorations or even gifts you bought on sale last year.

You may even find the gifts if you bought them after the holidays, stashed away and forgot to retrieve. It happened to me several years ago, when I found a few gifts and left it forgotten in a storage closet. After that, I have bought a big plastic bin where I keep all holiday decorations and last year’s gifts and created a designated space for holiday items, so I don’t lose track of them again.

5. Cash or credit cards

Recently I have read that “cash makes it easier to stick to your budget”. The idea behind that statement was to label envelopes with the name of the gift recipients and other spending categories. Then put the cash in each envelope, matching the amount with your planned budget.

This method sounds like an old fashioned to me, but it will be practical for anyone with careless shopping habits. With only limited cash available and no credit card to use, you cannot get out of hand with your spending. It’s easier to stick to your budget by paying cash.

So, pay cash if you want to avoid overspending. But I must admit that I never shop with cash and prefer to use credit cards. However, Roman and I are responsible credit card users. We always pay off our balance in full to avoid getting charged high interest. Besides, most of our credit cards offer cash-back rewards, so I feel that I still make money while shopping.

If you are planning to use credit cards, it’s recommended to shop with no more than 2 credit cards. You will be better off with low-interest credit cards, not the expensive department store cards. The more cards you use, the harder it is to keep a track of your spending.

6. Alternative gifts

table with eggs, baking dough and cookies - holiday budget

The winter holidays are the most expensive time of the year for many people. On average the shoppers will spend around 730 billion of hard-earned money between November and December.

What to do if you want to enjoy your holiday season without overspending or getting into new credit card debt?

What other options if you don’t have enough savings or extra cash available to cover your holiday expenses?

There some ideas of alternative gifts that will come handy. Instead of buying individual gifts, set up a Yankee Gift Swap or Secret Santa. Gift swaps and exchanges at holiday parties help to trim down the cost of holiday spending for every guest.

Other ideas – potluck dinner with friends and handmade gifts. Homemade or handmade gifts are great for any occasion. I have a friend who gives us beautifully decorated glass jars with homemade cookies for Christmas and New Year. She has a big box of saved holiday decorations and likes to make and decorate her gifts for each occasion.

Or you can give actions instead of physical gifts by babysitting for a stressed mom, cooking dinner with a friend, baking fresh out of the oven cookies with your kids or grandkids or simply buying and decorating a Christmas tree together with your family.

After all most of us cannot remember the gifts we received last year or year before. But we all have sweet memories of family’s favorite holiday traditions.

100 Free Gift Ideas Your Friends Will Actually Want to Receive by Nicole Dieker

Final Thoughts

The holiday season is here. It feels that holiday shopping starts earlier every year. Retail stores have barely put away their Halloween decorations before they fill the shelves with Christmas gifts. Festive holiday ads on TV, brightly decorated streets and shops would make you believe that this season is the best time for shopping. It’s easy to get overboard on holiday spending unless you know your limits.

Now is the best time to put your holiday budget together, make a list of gifts, check the prices and start shopping.

Have you planned out your holiday budget? Share in comments your ways to save money on holiday shopping.