6 Steps to a Mid-Year Financial Checkup

In June and July, it’s a good opportunity to check the pulse of your saving and spending plan with a mid-year financial checkup. A quick review of your spending can yield valuable insight into whether you are still on track to meet your financial goals. It can also help identify areas of waste and provide motivation to set new goals. To begin the process, it’s best to look back over the previous months and review your progress so far. Here are six steps that will make it easier for your mid-year financial checkup.

Step 1: Create or Revisit Your Budget

Creating and using a budget is a critical step in maximizing your financial health and reaching your long-term financial goals. Do you remember crunching numbers and detailing your financial goals at the end of last year?  Take some time to review your budget. Have you been sticking to the planned budget, or are you overspending in some categories or under-spending in others? You may need to adjust your discretionary spending across the board and that’s ok, your life may have changed since the beginning of the year and it’s ok to change your budget accordingly. For starters, evaluate your spending over the last few months and make the necessary changes so your budget can continue working for you. Be sure to account for major life changes that may change your financial needs, such as the birth of a child, a marriage, a divorce or a job change. By revising and adjusting your budget, you will avoid falling into the spending trap and you will be proactive, taking the necessary steps to stay on top of your finances for the rest of the year. The budget is an integral part of your financial well-being and if you haven’t created a budget yet, consider this your wake-up call to create one immediately.

Step 2: Evaluate Savings Contributions

Now that you’ve updated your monthly budget, check your monthly and annual savings rate which you may have set at the beginning of the year. Financial experts recommend that savings comprise 10-15% of your income. However, it is possible to miss the target occasionally. A mid-year checkup helps you revaluate your monthly expenses, so you can make necessary adjustments, and ensure that you make up for the lost savings. You will want to review your contributions to accounts, like your 401(k) account, a 403(b) plan or an IRA (Traditional or Roth) account if you are planning to catch up with your savings or retirement accounts. The IRS often increases the contribution limits to these accounts. So, mid-year financial checkups can help keep up with the new limits, allowing you to maximize your tax advantages.

Step 3: Check Your Credit and Bank Fees

Maintaining a healthy credit score is important for a good financial standing. It is recommended to check your credit score at least annually so you are proactive in identifying any discrepancies and even identity theft. If someone else has been using your personal information and social security number to apply for credit, or make purchases with your payment information, you may not notice the signs unless you take a close look at your credit reports. The credit bureaus, like Experian, Equifax and TransUnion, provide free credit reports every 12 months. To get your free credit reports, request them from the federally authorized website AnnualCreditReport.com. It’s important to be aware that checking your own report won’t hurt your credit. You can check credit reports for any errors or suspicious activity, or simply analyze your own activity. If you fall short on the score, you can make adjustments to improve your credit score by paying bills on time, keeping your unpaid balances low, repaying debts and being more careful of your debt liability in general. Take the necessary steps to improve your score as soon as you can, whether that means disputing a charge, setting up an automatic payment for your bills or lowering your credit utilization rate by paying less with credit cards and more with cash.

You may have also scrutinized your bank fees and credit card charges at the beginning of the year. Take a few minutes to check the status of your accounts and assess the fees you’re paying. Monthly service fees can range from $4 to $25, but they are generally easy to avoid by maintaining a minimum balance in your account or, setting up a monthly direct deposit that may waive the monthly fee. However, you can choose a checking or savings account with no monthly fees from the start. SDCCU offers Free Checking with eStatements, and you pay no monthly checking fees on this popular account.

Step 4: Assess Your Emergency Fund

One big lesson last year taught all of us is to be more financially prepared for emergencies. The COVID-19 pandemic slowed the economy, shut-down businesses and increased unemployment, leaving many people with a loss of income. The mid-year checkup is also an opportune time to be sure your rainy day fund is substantial enough to cover your essential expenses. The size of your emergency fund will vary depending on your lifestyle, monthly costs, income and dependents, but the rule of thumb is to put away at least three to six months worth of expenses. This way if an emergency happens again, you will be better able to weather the storm.

Step 5: Tackle Your Debt

It is worthwhile to review all your debts in the middle of the year for an in-depth review. Take a look at your student loan repayments, mortgages, car loans and other debts. If your mid-year review leaves you with some extra money on hand from your tax return or government stimulus payment, you can use this to repay your debt obligations. After you have listed every single outstanding debt, including credit card debt and loans, choose one debt to tackle first.  The Avalanche and Snow Ball approaches are two strategic methods that can help you get out of debt faster. Avalanche refers to tackling the debt that carries the highest interest rate or the Snow Ball method involves getting rid of debt with the lowest balance, and moving onto the next lowest to chip away at it. Devise a plan to get rid of your debt, being careful to at least pay the minimum on each. See if you can save on your budget or increase your income in any way so you pay more towards your outstanding debt. And remember, while paying down debt, it’s important to stop using your credit cards so you don’t rack up more!

Step 6: Review Your Long-Term Goals and Financial Resolutions

What financial resolutions did you commit to at the New Year? Did you set short-term goals? Perhaps, you set several mid-term goals that you want to achieve in one, two or five years? Maybe your first goal was stocking away three months of emergency funds in a separate account in one year, or saving up for a down payment for home purchase in five years. Take some time to review these goals and determine whether you’re taking the steps necessary to reach them. If you neglected them for the first half of the year, now is the time to create a plan for the rest of the year. Make it a habit to review your goal several weeks in a row, then it starts to become part of your unconscious thinking. After enough repetition, your mind will routinely look for the people, events, actions and opportunities that could bring you closer to your goal.

Congratulations, you just completed your mid-year financial checkup. This is a strategy of a prudent planner. During the checkup, you may have discovered some overspending, that you acquired more debt or something else. You can now make necessary changes to get your plan back on track.

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