Your Mid-Year Financial Checkup
- Written by Claudia Mollerup-Madsen, Morgan Stanley Wealth Management
July and August are always the months that send crowds of people to waiting rooms everywhere for their yearly physicals and mid-year checkups. That is, after your mailboxes and inboxes are flooded with countless postcards and emails reminding you to make the appointments. The same is true for your finances. This is the time of year to conduct a mid-year financial checkup to make sure that you are on the right track as far as your finances are concerned. Although some people only seem to check their finances at the beginning or end of the year, it is always a good idea to check mid-year as well. This year may be flying by, but a lot can happen between now and December, so it is important to check on your finances sooner rather than later. Here some tips to consider during your mid-year financial checkup: Review your financial goals. Take a look back at the financial goals you set for yourself in January and look at the progress you have made so far. If you did not set financial goals at the beginning of the year, it is not too late to do so now. These goals should be divided into categories such as short-term, midterm, and long-term. They may include anything from adding money to an emergency fund, adding to college savings or adding to your retirement. It is also a good idea to request a free credit report and do a mid-year check on your credit history. Check all reports for errors or any new issues that you see. It is better to put a stop to a small issue now, before it becomes a large-scale problem later. Check on your investments. Take a look at your statements from your stocks, bonds and savings. You will see which assets have made the most progress and which have suffered. Rebalancing is the process of buying and selling portions of your portfolio in order to reset the weight of each asset class back to its original state. This may involve selling asset classes that are performing well and buying more of an asset class that is not performing as well. You must think of it as a “buy low, sell high” situation that will keep your portfolio on track with the goals and targets you originally set out to obtain. Keep in mind that rebalancing does not necessarily assure a profit or protect against loss. Also be sure to diversify your portfolio regarding asset classes (stocks, bonds, cash, real estate, etc.) and try to diversify within each of those areas as well. Without diversification, you are putting most of or all of your eggs in one basket. If that basket breaks, you are in trouble. Start early on taxes. When it comes to tax season, it is always better to start early. Begin pulling together all of your receipts and records for your 2013 tax return. This way, when tax season comes around they will all already be in one place and easy to locate. In addition, this is the time to make any needed changes to your W-4 exemption form. These changes will include any major life shifts that have occurred so far this year, such as the birth or adoption of a child, marriage or divorce. These updates could have an effect on your taxes. If you do not update your exemption form, you could be paying the IRS too much or not enough money. Update your budget. The midyear checkup is the time to see if you have really been sticking to the budget you set for yourself. Take note of your monthly expenses by keeping a log of your recent spending. Look at your spending patterns so far this year. Once you know exactly where your money is going, it is time update your personal spending budget. By doing this, you will be able to see where you are setting too much money aside, and what needs extra attention. You can then edit the budget to fit your new spending needs by allocating your funds differently. Retirement & Healthcare. Other items to think about during your checkup include looking at your contributions to retirement accounts, flexible savings plans and looking over your healthcare plan choices. All of these are areas where you may need to update your contributions or choices to avoid trying to do a lump sum payment at the end of the year. Claudia Mollerup-Madsen is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Houston.