For many, there are a couple of times during the year when financial matters are top-of-mind: at the end of the year and when it’s getting close to the tax filing deadline. In the former case, we’re conditioned to think about the end-of-year checklists that require our attention so that our portfolios and planning are tax-efficient, that we’re on-plan for our budget, and that the saving and investing components of our financial strategy are working as intended. And then, of course, at tax time, most of us are looking at similar matters, probably with a special focus on retirement plan contributions and other tax-advantaged accounts that are helping us reduce the tax bill and also provide for a secure retirement lifestyle.
But these aren’t the only times of the year when you should be looking at your finances. After all, the economic and investment landscape is constantly changing, not just during December and at “tax time.” You should periodically review your financial plan as a whole and compare where you are now to where you want to be. Think about the days of sail: the master of the vessel had to take frequent star sightings and then recalculate the ship’s position on the map to account for the effects of wind, tides, and currents. In other words, if you want to stay on course to your desired financial destination, it’s a good idea to do a mid-year “course correction.”
Let’s take a look at four things you should review at mid-year.
Asset allocation.
The financial markets are in a constant state of motion. With the help and advice of your financial advisor, you’ve established the asset allocation model that is most appropriate for your goals and risk tolerance: the combination of equity, fixed-income, and other investments that best fit your circumstances. But, since the market value of your assets is constantly shifting, you need to regularly review how your percentages compare in relation to each other. A certain amount of variance from the model is to be expected, but you should work closely with your financial advisor so that, over time, your asset allocation percentages remain “on plan.” Don’t forget that part of this systematic reassessment involves periodic rebalancing—selling or buying to keep your asset mix within the guidelines you’ve set. As market pricing changes and the relative value of various portions of your portfolio rises and falls, periodic rebalancing is a necessary part of keeping your financial “ship” in proper sailing trim.
Retirement plan contributions.
Especially if you’re in the retirement glide path, you should keep an eye on the annual deposits to your plan(s). Each year, the maximums set by the IRS can change. Also, you may want to allow for inflation by increasing your retirement plan contributions from year to year when possible so that your purchasing power in retirement keeps up with your costs. If you are fortunate enough to have access to an employer-sponsored plan offering an employer match, you should absolutely be certain to contribute at least enough to take advantage of the “free money” the plan offers. If you’re age 50 or over, remember that you have access to catch-up contributions to your plan in addition to the standard maximums: in 2024, those 50 and older can contribute an extra $7,500 to a 401(K) or 403(b), and an extra $1,000 to an IRA. Also, don’t forget to check with your financial advisor about holding certain types of investments in your tax-advantaged retirement account as opposed to a taxable investment account. Assets expected to provide high appreciation may be able to benefit from “tax-free growth” if they are held in a tax-advantaged account.
Review your budget.
Mid-year is also a good time to review how you’re doing with keeping your spending, saving, and investing within your strategic guidelines. Are there areas for improvement? If you’re having trouble finding the extra funds to deposit the maximum in your retirement plans, are there opportunities to reduce spending to free up funds for savings? This is where the basics come into play in your financial plan: “Personal Finance 101”. Establishing and maintaining a budget is one of those things that we all need to periodically refocus on, which means that we all need to pay attention to our spending and our saving. When you think about it, a budget is like a map; unless you check your position regularly, you are likely to drift off-course. Your financial advisor is there to help you, so if you find yourself challenged by your budget, don’t be afraid to ask for assistance.
Check on your emergency fund.
One of the major determinants of how well we stick to our financial plan is the way we deal with unexpected expenses. Financial advisors generally suggest keeping 3–6 months’ worth of income in a liquid emergency fund that can be used to handle emergencies like car or home repair, failure of a major appliance or system, unplanned healthcare costs, and similar unpredictable expenses. The alternative—resorted to by too many—is reaching for a credit card, and that is where so many financial plans start to go off the rails. Credit card companies make their money by charging interest, and at the high rates charged by most companies, it can be really hard to pay off the debt. Even worse, accumulating interest can take you out of control of your monthly cash flow, making it even harder to save and invest.
JFS Wealth Advisors is committed to helping clients stay on course to reach their financial goals. If you’d like to learn more about how our planning and advising services can help you gain greater confidence for the future, please contact us. And for some great ideas on teaching your kids about smart money habits, read our article, “Learning about Money the Summer Fun Way.”
Important Disclosure Information: Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JFS. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. JFS is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the JFS’ current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.jfswa.com.
