How To Best Adjust Your Finances Mid-Year

Do you remember those goals you set for yourself at the beginning of the year? Likely in our current situation, they have changed significantly. When you were setting financial goals and aspirations for 2020, our world looked quite different.

The novel Coronavirus has changed the way we approach our jobs, families, relationships, and finances. With high market turbulence, many people have had to rethink their financial strategies altogether to get them where they need to be.

Today, our team wanted to take a moment to breathe and re-charge. We are, in fact halfway through 2020 making it a great time to readjust ourselves to promote financial and personal wellness in the second half of the year.

Here are some tips from our team to help center and balance your finances. 

Adapt your plan to life changes

Any big changes happen in your life? Of course, we are being facetious as we have all experienced a major wrench into our daily life and habits. Dining rooms become offices, back porches are break rooms, living rooms are classrooms and play areas, and kitchens are always a mess. 

Now that you have had some time to adjust to this new way of life, it is important to ensure that your financial plan best reflects these new circumstances. This means different things for everyone depending on employment status, business funds, and more. For you, it might be a new emphasis on saving measures or cutting back on expenses. 

No matter what, be sure that you take a look at your household expenses and how they have changed given your present circumstances. Once you know where you are, you can start to make a plan going forward. With interest rates lower, maybe it is time to refinance your house for a lower rate, or perhaps you need to take out a limited loan or credit to keep your business afloat. Once you know where you are, you can work with your financial planner to adjust your plan as you need to. 

Remember, your financial plan is a living document and should be adapted when things in your life change. This can be any big life event like a marriage, divorce, new child, and more. Whether you need to adjust your debt repayment plan, reassess your insurance needs, create a better retirement savings plan, or alter your estate plan take the time to do that as major changes arise. 

Take another look at your budget

Odds are that many of your household expenses have changed in the first half of the year. Some expenses may have gone down like schooling, daycare, vacations/trips, and entertainment whereas other expenses may have increased like takeout, grocery trips, and online shopping. 

Take some time to look at how your spending habits have altered to reflect your new normal. You may find that you need to adjust your budget to better reflect your current circumstances. A budget is a great way to keep track of your household expenses. It can and should change as your needs do. 

The second half of the year often sees the greatest spike in expenses from summer vacations to holiday gifting. Now is a good time to plan and save for some of those extra costs. Keep in mind that this year may look different for you. With a change in income, you may not be able to spend the way you are used to for holidays. That is okay. Be sure that you know what you can do so that you don’t go into debt. 

Build up your emergency fund

You may have needed to dip into your emergency fund at some point during this crisis. That is what a rainy day fund is for after all. Be sure that you take a look at your spending habits and new budget to see how much more you may need to funnel into your emergency fund to protect you and your family. 

No one knows how long the virus will distort our daily lives and having a cash reserve prepared in case of any other unexpected changes or developments can give you a financial cushion. Most advisors recommend having 3-6 months of living expenses (house, utilities, food, internet, etc.) in an emergency fund. But families like to try and build that up to 9-12 months especially with kids to care for. 

Even if it is just a little at a time, prioritizing replenishing this fund will be an important financial move this year. 

Tackle your taxes

Taxes extend way beyond April 15. When implemented correctly, effective tax planning can give your finances a boost and keep you on strong financial footing. Proactive tax planning needs to be done throughout the year to be most effective. 

Once December hits, there is little that you can do to lower your tax bill, but by actively applying tax-efficiency into your financial habits year-round you will see wonderful results come April. 

Mid-year is a good time to check your withholding to make sure you are paying the right amount in taxes each month. If you withhold too much, you essentially are giving the government an interest-free loan. Withhold too little and you can expect to owe much more come tax season. 

It is also a good time to look into your charitable giving strategies as many of those will lower your tax bill. Contributing regularly to your tax-deferred retirement accounts like 401(k) or traditional IRA will also lower your taxable income for the year. If you can, try to max out these savings vehicles ($19,500 for 401(k) and $6,000 for IRA). With changes to your income, you may not be able to max these vehicles out but try to contribute enough to qualify for your employer match if you have one. 

Your financial advisor will also be able to help you implement the right tax-efficient strategies for your goals. 

Check-in on your debt-reduction strategy

Debt is one of the biggest roadblocks for reaching financial goals. You likely have a strategy to tackle your debt and now is a good time to check-in on your progress. Take into account all types of debt you may be experiencing like credit cards, student loans, home mortgages, etc. and see how you are doing on each front.

With lower interest rates, it can make repaying credit card debt more manageable as some credit cards have adjustable rates which are often in line with the federal funds rate. Be sure to take advantage of these lower rates to get that debt out of your life. 

Since the government suspended student loan payments (including interest) through September, you can have a breather on student debt. If you can, try to pay more toward the principal amount to lower how much you end up paying over the life of the loan. 

Now might be a good time to look into refinancing your home mortgage for a better rate. Take a look at the rates out there and make sure that you have factored in additional cash needs for closing costs. 

Making a plan to reduce your debt will help you reach your financial goals. Set up a time to talk about your debt plan with your financial advisor who can help you take advantage of opportunities to pay down your debt faster. 

Take a break

There is a lot going on right now. It is important that you are able to take a step back from it all to focus on the people, places, and things that matter the most to you. Our team is here to help you balance your personal, professional, and financial goals to help create a plan that optimizes and enhances all of those aspects of your life. 

By taking control of your financial situation, even in times of uncertainty, you will feel more confident to tackle the challenges ahead. These may be uncertain times, but know that you are never facing your finances alone. Legacy Wealth is here to help and serve you. Ready to see how you can adjust your financial plan this summer? Schedule a 15-minute call with us.