Summer can be an ideal time to slow down, reflect and reset your money mindset. You also may find more time to review your financial goals — and decide whether you need a reboot.
“When it comes to those who want to ‘clean’ their financial house, my advice is that you must sweep the dust before bringing out the basket of heavy disinfectants,” recommends certified financial planner Stacy Francis, president and CEO of Francis Financial in New York. “Instead of being overwhelmed by the idea of keeping your finances perfectly in order, start small.”
Speaking with financial experts — namely, an accountant and a financial advisor — can help kickstart your cleanup, said Jordan Awoye, managing partner of Awoye Capital in Bay Shore, New York.
“Talking to your advisor during the end of the year and also in the middle of the year, during the six-month mark, kind of keeps us accountable, understanding what the goals are and what we’re trying to accomplish,” he said.
Here are three key actions financial experts suggest you take midyear:
1. Review and reset your budget
Looking at your cash flow or the dreaded “B” word (that is, budget) can be as simple as making a T-chart on a piece of paper. Draw a line down the middle of a lined piece of paper and write all of your sources of income on the left side and all of your liabilities or mandatory expenses on the right, including rent/mortgage, car payment, credit card bills and anything else you must pay every month.
Online cash flow software such as Mint.com, Personal Capital and YNAB can also help you keep track of your spending.
The middle of the year is also a good time to anticipate and prepare for new expenses. As federal student loan payments will come due for millions of borrowers this fall, for example, start to factor those costs into your budget, too.
“Make practice payments to yourself,” said Corbin Blackwell, a CFP and senior financial planner at Betterment. “Start putting aside whatever amount you know you were previously putting aside [for loan payments] or estimate payments for it and put it in a high-yield savings account for the next couple of months.
“That way, your budget can recalibrate around this additional bill.”
Continue to review your budget regularly to make sure you’re staying on track.
“We may allocate our money and pay our bills monthly, but we benefit from checking in weekly to keep up with an abundance of household transactions and to make course corrections when (not if) necessary,” advises Tim Maurer, a CFP and chief advisory officer of Signature FD, which has offices in Atlanta and Charlotte. He is also a member of the CNBC Financial Advisors Council.
2. Check your tax withholding
To avoid having too little tax withheld from your pay and facing an unexpected tax bill or penalty at tax time next April, check your tax withholding. That’s the money your employer withholds from each paycheck to put toward your federal and state tax obligations.
“It’s really easy around tax time to be like, ‘Oh, that was a big bill. Or like I got a really big refund. I should do something about it,'” said Blackwell. “And then you file your taxes.
“You check it off your list, and you actually don’t do anything about it,” he said, adding that now “you still have a little bit of a runway before the end of the year.”
Get your latest pay stub for your job(s) and your 2022 tax return, then go to the IRS Tax Withholding Estimator tool at irs.gov to figure out if the correct amount of taxes is being withheld. If you need to change your withholding, fill out an IRS Form W-4 and submit it to your employer.
Adjusting your tax withheld now can also help with your cash flow and ensure you receive a bigger paycheck and smaller refund at tax time.
3. Review your retirement savings
Review your workplace retirement savings plan to ensure that you are on track to maximize your 401(k) contributions. “Be sure that all monies are invested, and no funds are sitting in cash,” advised Francis, who is also a member of the CNBC Financial Advisors Council.
The start of the second half of the year can be a good time to also “evaluate the performance of your investment portfolio and rebalance if your asset allocation has drifted significantly,” recommended Ashton Lawrence, a CFP and senior wealth advisor at Mariner Wealth Advisors in Greenville, South Carolina.
Now may also be a good time to consider moving some of your traditional, pre-tax 401(k) money to a Roth 401(k), if your company offers in-plan conversions and you can afford the upfront tax hit.
“We really strongly believe we’re on a runway for the current tax laws to expire in 2025,” said Sam G. Huszczo, a CFP and CFA and founder of SGH Wealth Management in Lathrup Village, Michigan. “If they do, they revert back to 2017 and pretty much every tax bracket goes up 2% to 4%.”
“This might be a good moment to switch your entire 401(k) savings from the traditional side, over to the Roth 401(k) side, even if you’re in a high tax bracket right now,” he added. After paying the tax on the conversion, your funds can grow tax-free. Still, check with a tax professional to make sure this financial move is right for you.
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