It’s Not to Early to Start Thinking about a Midyear Financial Review
The Although temperatures in many parts of the US recently felt summer-like, several weeks of spring remain. Consumer price inflation and asset market volatilities probably make those temps feel even hotter. These phenomena may have resulted in relatively large changes in incomes, expenses, as well as the sources of these incomes and expenses. As such, for many of us the next few weeks before summer and, hopefully, vacations arrive, may prove fruitful for midyear financial plan reviews.
I recommend commencing a review by creating a checklist with timeline-delineated items:
- Near-term
- Medium-term
- Long-term
Typically, breaking jobs down into smaller tasks aids in execution. Additionally, using a timeline, with the most important items near the top, offers a risk-based manner to address items just in case the process gets pushed to the back-burner by more pressing items.
Near-Term Financial Review Items:
Near-term items for review fall into three main categories: 1) Income, 2) Expense, and 3) Benefits. Checking income for most of us should be a relatively quick exercise involving cursory reviews of a recent paystub and the bank account into which your employer regularly deposits your earnings. Providing those figures meet (or hopefully exceed) expectations, the review could progress on to evaluating expenses. If a budget exists, which I recommend, reconciliation of checking, savings, and investment account balances with mid-year expectations offers a potential roadmap for identifying “gaps” in the income-expense relationship. Potential next steps could involve evaluating credit card statements and/or bank account withdrawals for the sources of any gaps. While that paystub remains easily accessible, do a quick check-up on Flexible Savings and Health Savings Account balances, along with a review of tax withholding. This is a fine time to schedule any planned doctors’ or dentist’s visits yet to be booked as well.
A couple other items may be added to this Near-Term List as well. Given the prevalence of identity theft, a periodic credit report review is a financial review best practice. Thinking about charitable giving mid-year also may prove useful for you as well as for the recipients of your gifts.
Medium-Term Financial Review Items:
Quick glances at retirement, education, and emergency fund contributions and balances represent medium-term items for a productive financial review. Assure that deductions flow in the proper amounts to the proper accounts. Given the large moves thus far in 2022 for many assets classes, it likely will prove beneficial for many people to spend some time on their asset allocation plans. Reconcile that current account holdings compare well with target weightings by asset class and/or sector. A rule of thumb for emergency funds are that they cover three months of projected expenses: with inflation running hot maybe a little more needs to be held in reserve here. Finally, take looks at outstanding debt balances: mortgages, student loans, etc. to gauge payments made thus far in 2022 match with expected balances.
Long-Term Financial Review Items:
Confirmation that estate plans and wills reside where they are supposed to be come near the top of the Long-Term List. Similarly, assuring that safe deposit box keys, passwords, and similar items and information are where they are supposed to be remains a good idea. Reviewing beneficiary information for retirement and other financial accounts while documents are front-of-mind and accessible could save a great deal of time and frustration in the future.