It's Time for Your Summer Financial Checkup

It's Time for Your Summer Financial Checkup

September 2016


Where are your finances exactly? Summer is a good time to take the measure of your situation. Anthony Perillo, a financial advisor with Hewins Financial Advisors, tell us how:

Is 2016 seriously more than halfway over? It feels like we just got started, and I have proof: while I’m not proud to admit it, I absentmindedly wrote “2015” when I dated a document a few weeks ago. Apparently, this year is going by so fast that my brain can’t keep up.

It’s easy to get caught up in the craziness of everyday life, so summer is a great time to pause and reflect on what you’ve accomplished so far. Whether formalized or not, we all have financial goals and aspirations. Are you in a better financial position now than you were last year? Here’s a checklist to help make sure you’re on track for the rest of 2016.

Revisit Your Budget

What are your average income and expenses in a given month? If you answered, “I don’t know,” you’re not alone: a 2013 Gallup poll found that about two-thirds of American households do not prepare a detailed budget. While it can be tedious, keeping a defined, up-to-date budget is critical to making sure that you’re on track to meet your financial goals.

Take some time to sit down and record what you’ve earned and spent over the past six to 12 months. Many banks and credit card companies provide spending summaries on their annual statements, which can be a great starting point. If you’re running tight on cash, it may be time to consider reducing or eliminating some of your discretionary spending to get back in balance. On the other hand, if you have excess income that isn’t being put to work, you should consider meeting with your advisor to determine the most effective way to invest or otherwise utilize those funds.

Create a Cash Flow Plan

After you’ve updated your budget, think about the rest of the year: beyond your regular budget, are there any upcoming expenses that you need to cover? Do you have cash set aside for those expenses, or do you know where the money will come from? This is especially important for retirees, who likely have expenses that are greater than their regular income, but it applies to working folks, as well.

You may need to adjust your spending in order to make room for that new car. And if you’re retired and need to withdraw from your investments to meet expenses, you should determine the best bucket to use. Chances are, you probably will have more than one type of investment account by the time you reach retirement age. Different types of investment vehicles may come with varying restrictions on withdrawals and tax implications for distributing cash, so consult with your financial advisor or CPA to come up with an efficient distribution plan for your upcoming cash flow needs.

Take Advantage of Tax-Saving Opportunities

Retirement Accounts. Remember to review your retirement plan contributions this year if you haven’t done so already. The IRS frequently increases contribution limits from year to year to adjust for inflation (though the limits did not increase from last year to this year). In 2016, the contribution limit for traditional and Roth IRAs, subject to income phase-outs, is $5,500. There is also an additional “catch-up” contribution of $1,000 available for individuals over age 50. The contribution limit for 401(k) plans is $18,000, with an additional $6,000 in catch-up contributions available for individuals age 50 and older.

If you aren’t maxing out your retirement plan contributions, look back to your budget. Did you receive a windfall this year, such as a bonus, raise or inheritance? Consider utilizing those additional funds to maximize your contributions. By making traditional deferrals into your retirement plan, you’re not only saving for retirement, but you can also reduce your current income taxes.

Health Savings Account (HSA) Contributions. If you are covered by a high-deductible health plan (HDHP) for your health insurance, consider taking advantage of an HSA account. You can make HSA contributions directly from your payroll on a pre-tax basis, or take them as an above-the-line deduction on your tax return. In either case, an HSA account allows you to pay for qualified medical expenses with before-tax dollars. This can be a great savings option, particularly for individuals in high tax brackets. For 2016, the contribution limits for HSA accounts are $3,350 for individuals and $6,750 for families, with a $1,000 catch-up contribution available for individuals who are age 55 and older (note the difference in the catch-up age compared to IRA and 401(k) accounts).

Tax-Loss Harvesting. As we experienced multiple times during the first half of 2016, the markets can be volatile. If you have a taxable investment account, consider utilizing tax-loss harvesting if some of your holdings are currently trading at a loss. This is a strategy that allows you to sell an investment at a loss and buy a similar, substitute investment at the same time (think swapping Pepsi for Coke, or Ford for Chrysler). This allows you to lock in an otherwise unusable paper loss to offset gains on your tax return, while your overall investment portfolio stays virtually the same.

Check Your Credit Score

Under the Fair Credit Reporting Act (FCRA), you are allowed a free, annual credit report from any of the three, major credit reporting companies: Experian, TransUnion and Equifax. If you haven’t checked your credit score in the past year, take a few minutes and submit a request for your report. The easiest way to do this is by visiting

Keep in mind that is the only platform that is authorized by the government to facilitate free credit report requests (as of now). Be wary of impostor websites advertising perks that appear too good to be true or ask you to submit your financial information. Also, do not reply to any phone calls or email messages from other companies claiming to suggest they can provide you with a free credit report. If a company solicits you for personal information, it is likely part of a scam.

If you find any errors on your credit report, be sure to contest them with the Federal Trade Commission (FTC), the credit agency or the lender that provided the information to the agency.

Tackle Debt

After checking your credit score, make a plan to tackle your outstanding debt. Certainly, this is not to suggest that you should try to pay off your house as soon as possible. Some debts, like your mortgage, are considered “good debts”, because they can provide a significant personal benefit (home ownership, in this example) and may be tax-deductible. Depending on your comfort level regarding debt and interest rates, you may want to focus on making regularly scheduled payments on your good debts and invest the excess cash instead of accelerating your principal payments.

You should focus on tackling any bad debts you may have first. Bad debts include credit card debt and payday loans, which can carry very high interest rates, hurt your credit score and cause serious problems if not managed carefully. Before the year ends, try to pay off your bad debts as quickly as possible. If you’re having difficulty managing your debt, consult with your financial advisor or a reputable credit counseling organization to develop a plan.

There are also a few strategies that can help you manage your current debt more efficiently. Some examples include refinancing your mortgage to one with a lower interest rate, consolidating your student loans and paying off your personal loans with a home equity loan or home equity line of credit (HELOC), which converts your non-deductible, personal loan interest into tax-deductible, home equity interest.

Review Your Employee Benefits

Are you passing up any benefits or perks programs at work? If your employer will match your 401(k) contributions, and you aren’t making large enough contributions to get the full amount, you should boost your deferrals to maximize that benefit if at all possible. Don’t leave free money on the table!

Also, take some time to review your health insurance plan before your company’s next open enrollment period begins. Is your current plan the most cost-effective option for you? If you are not covered by an HDHP, you may want to explore whether utilizing an HDHP and an HSA account (as mentioned above) would be a better way to pay for your healthcare costs moving forward.

Lastly, if you are in good health and have been paying for supplemental life insurance through your employer, consider shopping the life insurance market for an individual term policy instead. Chances are, you’ll be able to find cheaper coverage with a policy that only insures you. If you do this, it would be wise to work with an insurance consultant who represents a wide variety of insurance providers; otherwise, it may be difficult to determine whether you’re getting a good deal.

Update Your Estate Plan

Estate planning is important at any age and stage of life. If you haven’t reviewed your plan in a while or need help getting one off the ground, here are six estate planning tasks that you should tackle today.

Reflect on Your Goals and Update Your Plan Accordingly

Once you’ve tackled the steps above, think about how your financial situation and aspirations may have changed since you last updated your plan. As financial planners, we often find that our clients’ goals and priorities can shift significantly from one year to the next — and there’s nothing wrong with that. But as your situation changes, so should your financial plan.

At a minimum, you should review your plan on an annual basis, and even more frequently as life throws changes at you. While no financial plan is perfect, the best plans are accurate and current. Now is a great time to meet with your financial advisor to discuss any changes to your goals or personal financial situation that may have a material impact on your plan. And if you don’t have a comprehensive plan or an advisor to coordinate the process, there’s no better time to get started.


This article was written by Larry Light from Forbes and was legally licensed through the NewsCred publisher network.

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