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5 Critical Steps: Check In On Your Finances Before Checking Out for Summer Thumbnail

5 Critical Steps: Check In On Your Finances Before Checking Out for Summer

Leisl L. Cording, CFP®, CDFA®
Senior Vice President & Financial Advisor 

At the start of the year, you likely set some goals for yourself, including financial goals such as saving for retirement, a child’s college education, or an upcoming large purchase such as a new home or car. With half the year behind us (and summer vacations ahead that blur into busy autumn activities and the holidays), now is the time to review those goals once again and make sure you’re still on track to meet them.

Particularly in a year as unusual as 2021 – as the world emerges from the pandemic and its many effects on the financial markets to the job and real estate markets, to more personal changes in priorities and lifestyle – it’s likely there have been at least some changes in your life or finances since January. Here are five key strategies to review and reassess right now to ensure your plan for 2021 is still on track to have you investing well and living well through the end of this year and beyond.

1. Review and re-assess your financial goals and budget.

Take a look at your income and budget to see if the numbers still match up, or if they need some adjusting. Are you earning more or less now than you were at the start of the year? Have your cost-of-living expenses increased?

If you’re earning less or your expenses have increased, you’ll need to update your budget accordingly. Ideally, you’ll do this by reducing your flexible, or discretionary, spending in order to stay on track with your savings goals. Remember the handy 50/30/20 budgeting rule of thumb – whatever your take home income is, allocate 50% to your everyday bills and basic needs, 30% to wants like meals out and entertainment, and 20% to savings for future goals and emergencies.

If you’re earning more now than you were at the start of the year, or if your expenses have decreased, it’s just as important to update your budget accordingly. Don’t just let those extra funds default into discretionary spending; put them to work for you by saving or investing more instead so that you can Live Well beyond the present moment. 

2. Review and rebalance your investment portfolio.

Similar to reviewing and adjusting your budget, it’s extremely important to review and adjust your retirement plan and other investments at the mid-year point as well. If after the above budgeting exercise, you find that you have more money than before available for retirement savings or other investments, be sure to add that additional money to your automatic contributions each month. If you're 50 or older, consider making catch-up contributions to your retirement plan.

If on the other hand you have less available to invest, talk with a financial advisor – we can strategize ways to help you make up the shortfall. Depending on how long you have until your goal retirement age, you may want to switch your investments to those that carry more risk but offer greater potential for growth.

There’s also the possibility with the way the market has performed in recent months, that it has caused your investments to have a larger allocation to stocks. You’ll want to talk with your financial advisor about what changes to make in order to bring your investments back into balance again. Just remember, investing well to live well is a marathon, not a sprint. Keeping a strategic investment plan today will yield the best results in achieving your long-term goals for tomorrow. 

3. Do a dry run of your taxes now to avoid any surprises at tax time.

Pretty much everyone dreads the prospect of owing a large sum at tax time. But if you take a look at your taxes now to determine if any adjustments are necessary, you’ll have a much better chance of avoiding that unhappy situation.

Use last year's tax return as your starting point. Then, factor in any gains or losses to your income (through both earnings and investments) since January, as well as whether there have been any changes in the tax deductions you can take. Also consider whether or not you’ll expect any changes to your income or deductions in the next half of this year. This will give you an idea of what your tax liability will be for 2021. (You can also use our helpful 1040 Tax Calculator). 

Then, check your withholding (you can check it using the IRS Tax Withholding Estimator. Are you tracking to have more or less than your expected tax bill taken out of your earnings by the end of the year? If so, adjust the amount of federal or state income tax withheld from your paycheck accordingly, by filing a new Form W-4 with your employer. If your income has increased and you’re on track to owe more, consider diverting that increased income into tax-advantaged savings like your retirement account, a 529 college fund, or a health savings account (HSA). You’ll reduce your tax bill while saving even more for the future.

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4. Check your FSA or HSA accounts.

Speaking of health savings accounts – if you have one, or if you have a flexible spending account (FSA), check in on your balance. HSAs are a great way to save in a triple tax-deferred way if you participate in a High Deductible Health Plan (HDHP). The contributions reduce your taxable income, the money in the HSA grows tax-deferred, and if you take it out for qualified medical expenses, it is tax-free. After age 65, you can withdraw any money in your HSA for any reason without penalties. You can contribute up to $7,200 for a family in 2021, and if over age 55, that number is $8,200. HSAs can carry over from year to year and from employer plan to employer plan. HSAs are a great way to save on taxes and grow money for health care needs now and later in life.

FSAs for the most part must be used before year end (there is a carry over allowed amount of $550.) However, the Consolidated Appropriations Act signed into law in December, 2020, temporarily allows you to carry over any unused FSA funds at the end of 2021, if your company has chosen to opt in to this carry-over; be sure to check with them. Are you contributing enough to cover your anticipated needs through the end of the year or are you contributing too much? Consider adjusting your contribution to match your needs through the end of the year.

5. Check your credit.

Many people have had their financial plans derailed over the last year, which may have resulted in missed payments on loans and credit card bills. But even if you didn’t suffer these setbacks, it’s a good idea to be aware of your credit score and to check your credit report periodically for any inaccuracies that could be negatively affecting you. Everyone has the right to a free report from each of the three major credit reporting agencies each year. You can access yours at AnnualCreditReport.com. Review your report, dispute any inaccurate information, and assess the damage that may have been done to your credit due to missed payments in the last year. Once you’re fully aware of where you stand, you can begin the work of repairing your credit and getting back on track with your financial goals.

Plan Well and Invest Well, so you can Live Well

All of these steps are part of our strategic Plan Well, Invest Well,Live Well™ process. Financial health, wealth building, and the life goals that building wealth allows you to achieve are a direct result of Planning Well and Investing Well. They require careful strategy, constant review and adjustment and long-term commitment – but the payoff is priceless. Find out more about our process and how we can guide you through your own personalized strategy for Living Well and reaching your goals.

Authored by Vice President, Associate Financial Advisor Leisl L. Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com (http://www.whzwealth.com).

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