Mid-Year Financial Planning Check-Up: Addressing rising inflation and bear markets
Summer is a great time to perform a mid-year check-up of your current financial situation. Here are 7 things you can do right now to ensure you are meeting your goals and positioning your finances, so they are in great shape heading into the second half of 2022.
Review Your Budget
A review of your budget may be necessary as inflation continues to rise. Everything from gas to groceries, airfare to hotels seems to cost A LOT more these days. Adjust your spending accordingly and avoid carrying a balance on your credit cards. Keeping track of your spending now will help you avoid any surprises in the future.
Increase Your Emergency Savings
If we learned anything from the pandemic, it is that anything is possible. The rule of thumb for emergency savings used to be 3-6 months’ worth of expenses held in cash. Post-pandemic, you may feel more comfortable with 6 to 12 months of expenses socked away. As noted above, inflation is driving prices higher on almost everything, so your total monthly costs have likely increased. Now is a great time to compare your monthly spending with the amount you have in your emergency savings to ensure you have enough cash to cover expenses should the unexpected occur. You never want to be forced to sell assets under financial distress.
Check Your Credit Score
Checking your credit score is a great way to review your financial well-being. It is also essential if you plan on making any significant financial decisions in the second half of 2022. For example, buying a car, purchasing a home, changing apartments, getting a new credit card, or taking out a personal loan will require a credit check. In addition, reviewing your credit score ahead of time allows you to identify any potential errors or problems and work to get them resolved before filling out any credit applications.
Adjust Your Retirement Contributions
If you participate in your employer’s 401(k) or 403(b) retirement plans, take some time to review your account. For 2022, the 401(k) contribution limit increased by $1,000 to $20,500 for those under 50 and $26,500 for those 50 and better.1 If you are under the limit, it may make sense to increase your contributions.
Consider Your Income Tax Liability
Review your tax withholdings to make sure you are withholding the proper amount. If you have recently married or divorced, purchased a home, or had some other major life event, adjustments may be necessary to ensure you are covered. Making sure your tax withholdings reflect your current situation can help you avoid a nasty surprise at tax time next year.
Review Your Investments
By all objective measures, the equity markets have been volatile for the first half of 2022. For example, the S&P 500 has again entered bear market territory (defined as 20% off its most recent high).
Market downturns are a great time to review your investments to ensure you are keeping on track with your financial plan. It may also be time to harvest some tax losses and rebalance your portfolio to make sure it’s in alignment with your optimal asset allocation. Doing so may put you in an advantageous position to recover more ground when the equity markets ultimately rebound.
Revisit Your Financial Goals
If you are fortunate enough to spend some quality time with your family this summer, it may be a great time to discuss your and your family’s financial goals. There is nothing quite like a family vacation and time away from our daily grind to give us some perspective and help us look at things with a fresh, well-rested set of eyes. Discussing goals and what members want out of life can help clarify personal and family financial goals.
Summary
The summer slowdown is a perfect opportunity to step back and take stock of your current financial situation. If you feel you are on track, relax and enjoy the summer BBQs, beach, and family get-togethers. If not, it may be time to discuss your situation with a financial advisor.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limitsAbout the author:
JP Geisbauer is a Certified Public Accountant and a Certified Financial Planner ®. He is the founder of Centerpoint Financial Management, LLC, a financial planning, investment management, and income tax planning firm located in Irvine, CA. If you have specific questions regarding your situation, please schedule a complimentary 30-minute call here.
Disclaimer:
This article is for general information and educational purposes only. Nothing contained in this article constitutes individual financial, investment, tax, or legal advice. Before taking any action on any topic discussed in this article, please consult with your own financial planner, investment advisor, tax professional, and/or attorney for advice on your specific situation.