As we enter the second half of the year, it’s a great time to check in on how you’re tracking toward your 2022 financial goals. Because economic circumstances have shifted since the start of the year, it’s also a good time to make any necessary adjustments to make sure you stay on track.
Check In on Exactly Where You’re at Now
“When it comes to conducting a mid-year financial checkup, I like to think of it as an opportunity to make sure I am set up for success for the rest of the year,” said Amy Richardson, CFP with Schwab Intelligent Portfolios Premium. “I like to keep it simple and focus on three things: (1) evaluate your budget, (2) review progress towards your goals and (3) put yourself in the most tax advantageous position.”
Check on Your Budget
Richardson said to use the mid-point of the year as an opportunity to hold yourself accountable to the budget you set at the beginning of the year.
“Life happens and sometimes we aren’t aware of how our spending might have changed over the past six months, so it is important to review your spending throughout the first half of the year,” she said. “It is also important to make sure to review all automatic payments and subscriptions that you may have forgotten about.
“If any of your spending categories are out of alignment, you can focus the remainder of the year on making sure you stay within your limits. Your budget doesn’t have to be static. Be prepared to make adjustments. Deciding to spend less for the remainder of the year may give you greater peace of mind and relieve anxiety if you are worried about the economy.”
This is also a good time to make sure your emergency fund is where it should be.
“This account should have enough to cover at least three to six months’ worth of living expenses to help avoid increasing your credit card balances or being forced to tap into funds that are earmarked for your long-term goals,” Richardson said. “A key piece of having emergency cash on hand is to keep you from having to sell other investments at inopportune times in the market.”
Review Progress Toward Your Goals
“The most important thing for your future is to review your life goals regularly and evaluate if you need to make any adjustments,” Richardson said. “Consider setting personal challenges for yourself. For example, you can set a goal to grow your savings each year by saving $50 in a set account each month, and then $100 the next year and so on. This is a fun way to see growth; and, when you see the results, you are more likely to keep up the progress.”
You should also check in on how you are progressing toward paying off any debt you may have.
Put Yourself in the Most Tax Advantageous Position
It’s not too soon to start thinking about the next tax season.
“Review your 401(k) contributions, HSA or FSA, and any charitable accounts to make sure you are maximizing tax advantageous accounts,” Richardson said. “It is important that you don’t leave money on the table by ensuring you are contributing to your company’s retirement plan and other tax-advantaged accounts up to the maximum match.”
If you can contribute more than your company match, aim to do so, Richardson said. Ideally, you’ll contribute up to the annual limit, which is up to $20,500 for 401(k) plans.
“And, if from there, you still have room in your budget, it’s great if you can save more by funding an IRA,” she said.
Mid-year is also a good time to review your paycheck withholdings to make sure they are correct.
“Seeking guidance from a financial planner can be helpful to make sure you are not overpaying taxes and giving the government extra money that could go toward your savings,” Richardson said.
How To Adjust Your Financial Plans To Account for Market Volatility
Even though we’ve transitioned from a bull to a bear market since the beginning of the year, Richardson recommends staying the course.
“Regardless of today’s market environment, it is important to remember that volatility doesn’t mean you should stop investing and saving,” she said. “You should always focus on your long-term financial goals. The best approach to long-term success is broad diversification that aligns with your appetite for risk. That said, you can make tweaks to your investment strategy to account for the environment. Consider protecting your portfolio by incorporating Treasury Inflation-Protected Securities (TIPS), Series I Savings Bonds and other asset classes that hedge against higher inflation.”
The mid-year point is a good time to rebalance your portfolio if allocations have drifted out of your target allocation, Richardson said. Make sure your allocations are in line with your time horizon and appetite for risk.
“Use this as an opportunity to perform tax-loss harvesting in your taxable accounts in addition to other important portfolio clean-up and adjustments,” Richardson said.
Although you may want to make some adjustments, don’t let the bear market scare you out of investing altogether.
“Keep investing, and don’t let short-term market volatility impact your long-term goals,” Richardson said. “Time in the market produces better outcomes for investors than timing the market. If the bear market has you unsure of what to do, consider working with a financial advisor who can help you make smart decisions in the context of your broader financial picture and put worries to rest.”
How To Adjust Your Financial Plans To Account for Inflation
“With inflation up, chances are a lot more of your income is going towards everyday expenses such as groceries, gas, etc.,” Richardson said. “It is important to reflect on where you can cut back to keep your budget and savings on track for the long term. This might mean cutting back on eating out, entertainment or non-essential shopping. The key is to identify the expenses you care most about and can afford.”
You also may want to increase the size of your emergency fund to reflect the higher cost of living, Richardson said.
“It is important to stay flexible and buckle down in areas you can — think dining out and shopping — so that you can keep your budget on track,” she said. “You can still enjoy the things you like to do. Just be aware of the cost and find ways to get creative (such as having a) picnic in the park (instead of dining out), biking more (to save on gas), etc.”
How To Adjust Your Financial Plans To Account for Higher Interest Rates
“If you were planning to take out a loan this year for a home, car or something else, it will likely cost you more, which you will need to factor into your plans,” Richardson said. “A bit of good news is that there may be more opportunities as the year goes on to find higher interest rate bank accounts and savings vehicles, offering the opportunity to get more out of your savings.”
As for how the interest rate environment impacts your investments, there are different impacts for stocks, bonds and other asset classes, but it remains important to stay diversified and keep your eye on the long term, Richardson said.
“We can’t predict where interest rates will go or how any given investment will react, so it is important to avoid putting your eggs in one basket,” she said.
Richardson said to stay focused on the bigger picture when planning for the second half of 2022.
“We don’t want the headlines of today’s environment to distract or derail the goals and priorities you have for yourself over the long term,” she said. “Interest rates do fluctuate, but your financial plan is considering the next 10, 20, 30-plus years. Remember that if you already have loans with a fixed interest rate, rising interest rates won’t impact your existing loans. If you have variable rate loans, this could be an opportunity to consolidate or re-evaluate the structure of these loans to a fixed rate.”
What To Keep in Mind When Planning for the Rest of 2022
Be considerate of the current economy when making financial plans for the remainder of the year.
“During times like this, it is important to consider how you can put yourself in a better position to stay ahead of inflation,” Richardson said. “That means your money needs to earn more than many traditional checking and savings accounts earn. It is essential, if you are planning your goals for the long term, that you remember to start investing as early as you can and keep investing — regardless of what you are hearing or reading about the markets.”
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