Money Matters / Take your financial pulse at midyear
Midyear is the time to take your financial pulse, to evaluate progress toward financial goals made at the beginning of the year and make any necessary adjustments.
You probably don't view yourself as businesses, trying to turn a profit and beat out the competition. But occasionally it helps to look at your financial situation this way. Where an executive might reach for financial statements to get a read on the company's standing, you can create or update a net-worth statement. Essentially a monetary scorecard, a net-worth statement helps you determine where you stand financially and whether you're on track to meet your goals.
You can calculate your net worth by adding all of your assets, including cash and cash equivalents, brokerage account balances, retirement funds, real estate and other fixed assets and personal property. Then subtract your liabilities, including mortgages, personal loans, credit card balances and taxes due.
The result provides some important clues about where your money is going and how you might be able to trim spending and increase savings.
Practice risk management
To maintain their companies' financial health, business executives also practice risk management. You can do the same by first assessing compensation and benefits elections. A major life change, such as a marriage or birth, may require an update to your W-4 withholding status.
Also monitor your Flexible Spending Account. Remember, FSAs are "use it or lose it" propositions. To the extent possible, accelerate covered expenses so you'll be able to take advantage of your deferred amount. Even if your employer has amended its plan to allow $500 carryovers, be sure you're on target to stay within that range.
Insurance is another important risk-management area to review. Insurance needs change over time. Perhaps your home has increased in value, requiring a corresponding increase in your homeowner's coverage. Or maybe you no longer have enough life insurance to protect your growing family. Talk to your insurance professional to determine the right amount of coverage.
Finally, check your credit report. If you wait until something is obviously wrong, it may be too late to prevent significant damage. Federal law requires the three major credit reporting agencies to provide you with one free report per year. Visit the Federal Trade Commission's website, https://www.annualcreditreport.com/index.action, or call 877-322-8228 toll-free for more information.
Looking at retirement
The distant future is just as important as the near one. If your employer allows you to adjust your retirement plan contributions during the year, consider boosting them to take full advantage of tax-deferred compounding and, if available, employer matching. Similarly, if you plan to make an IRA or Education Savings Account contribution for this year, do so as early as possible to give your assets more time to grow.
Also review your estate plan and, if necessary, update it. Financial priorities change over time, so make sure the beneficiary designations for your retirement accounts and insurance policies still match your wishes. Check your will or living trust to ensure no changes are necessary. And, if you're looking to reduce the value of your taxable estate, remember that you can make $14,000 ($28,000 for married couples) in annual exclusion gifts per recipient this year without using up any lifetime exemption.
Some might say that the beginning of the year, when you set goals, is the most important time for financial planning. Others might say year end, when you determine whether you've accomplished your goals and start preparing for tax return filing, is the critical time. In fact, the whole year is important. And right now is the perfect time to pause and assess, so you can perhaps make adjustments, and finish strong.
This has been a general discussion and is not intended as advice to anyone. Always discuss your financial planning with a qualified professional before making decisions.
Norman G. Grill Jr. is a certified public accountant and managing partner of Grill & Partners LLC, accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien. His "Money Matters" column appears monthly. He can be reached at n.grill@GRILL1.com