Taxes. Did you receive a sizable refund or owe a chunk of money this tax season? If either one happened, now is a good time to correct that for 2021 by projecting your taxes for the year and changing how much you are having withheld from your paycheck or paying in estimated tax payments. If you need help, you can use the IRS Tax Withholding Estimator on the IRS website: IRS.gov . If a change is warranted, file a new W4 with your employer.
Be Honest about your spending. Reflect on your expenditures from the past three months; this doesn’t mean you have to go through your credit card statement, but we encourage it. Review your household budget or spending plan. Are you on track? Do you have a good handle on where you are spending your money? Do some categories need adjustment? Are you saving enough money from each paycheck towards retirement or your other goals?
Retirement accounts. Have you received a raise this year that might allow you to put more into your retirement plan at work? Or, if a plan is not available at work, are you contributing more to your individual retirement account (IRA)? Make sure you check the contribution limits and that you are getting the maximum employer match, where available, that you can possibly receive. Check out the availability of a catch up contribution as well.
Investments. You should review your portfolio to see if you want to make some tweaks or need to rebalance it back to a chosen allocation. Does it still line up with your financial goals, time horizon, and risk tolerance? One tweak to consider is for taxes. The decision to buy or sell an investment should generally be based on your need and the economics of the investments themselves, not taxes. But if you have sold off some winners this year, you may want to consider offsetting some of those taxable gains by selling off some losers.
Charitable donations. Yes, you can wait until the end of the year to make planned donations. But consider avoiding the rush, which can lead to mistakes, and get a head start with your planning now. Perhaps appreciated securities will make the perfect donation. Perhaps a Qualified Charitable D istribution from your IRA makes some sense. Now is the time to explore your options.
Prioritize your emergency fund. An emergency fund is an amount of savings reserved for unexpected emergencies such as vehicle repairs, medical bills, or loss of income. This reserve can be kept as physical cash, or set aside in a savings account, checking account or Roth IRA. Regardless of your circumstances, we recommend that everyone prioritize building their emergency fund
Our advice is to save th ree months of expenses if your household has two income sources, and six months of expenses if you have one income source. “Expenses” should include household costs that would not stop if you were to lose your job. These expenses include household costs that would not stop if you were to lose your job. These expenses include your rent/mortgageyour rent/mortgage, essential utilities, groceries, insurance, transportation, etc., essential utilities, groceries, insurance, transportation, etc.
Plan for the holidays. Now is the time that we all wish we would have started Christmas shopping instead of visiting the dreadfully crowded malls two weeks before Christmas. Well, here is your friendly reminder! If things are financially tight, consider a gift excha nge where you are only responsible for a single family member. Holidays can be a stressful time, even though it should be a time for gratitude, so plan to fully enjoy your holiday season.
It’s essential that we evaluate how our financial behaviors, good or bad, have evolved throughout the past few months. If they are good now, how are you going to continue down this path? What will you do to make sure you do not fall back into old habits?
Tips for your mid year financial review (PDF)