Your mid-year finance review: Five steps to financial success

It’s summertime, and for many people that means family vacations and summer break for the kids. But it also means we’re officially at the halfway point of the year, making now a perfect time to give yourself a financial checkup. Taking the time for a little financial reflection can help you see if you are where you want to be — and, if not, what you might do to get back on track.

Step one: Review your retirement contributions

Take a fresh look at the amount of money you’re allocating to your 401(k), IRA or other retirement savings accounts. In doing so, think in terms of the monthly retirement income the money will generate, rather than the total amount in your savings. Online retirement calculators can show you the future monthly income you’ll likely need in retirement and the progress you’re making toward that goal.

Depending on what you learn, you may consider adjusting your contributions and/or your asset allocation, as needed. Your financial advisor or trusted Commerce Financial Advisor should be able to provide the information you need to help determine what may be best for your overall financial goals.

They can also help you make sure you’re maximizing tax-deferred investment opportunities. For example, in 2023 the Internal Revenue Service increased the amount individuals can contribute to their 401(k) to $22,500. The catch-up contribution limit for employees age 50 and over who participate in a 401(k), 403(b), most 457 plans and the government’s Thrift Savings Plan increased to $7,500. That means if you’re employed and age 50 or over and participating in these plans, you can now contribute up to $30,000.

If you’re able to do so, consider increasing your monthly contributions to take advantage of these tax-savings programs. You should also consider taking full advantage of any available company-match opportunities. While everyone’s circumstances are different, a good rule of thumb is to save 15 percent of your salary for retirement.

Step two: Assess your personal and emergency savings

It’s also time to evaluate the balance of your emergency fund. Should the unexpected occur, having at least three to six months of your living expenses saved is tried and true wisdom, but the global pandemic and economic volatility has put some consumers in a bind. Free online budget calculators can help you itemize your monthly current income and evaluate your expenses to help determine a savings amount to work toward.

If you’ve already dipped into your personal and emergency accounts this year and haven’t yet replaced the funds, now is also a good time to create a plan for replenishing this account. Understanding your budget helps you keep track of the money that goes in — and out of — your account, and online budget calculators can also help you identify ways to free up money so you can increase your savings, even if temporarily. It can help you plan ahead on ways to reduce spending if you need to rely on these funds for an extended period.

Step three: Evaluate your insurance policies

Insurance needs change over time, which is why it’s important to evaluate your insurance needs periodically and make sure you have the right types and amounts of insurance to cover unexpected circumstances that can wreak havoc on your finances.

Let’s start with life insurance. If you’re young and your family is growing, you may want to increase your life insurance to replace lost income associated with an untimely death. On the other hand, as you get older, you have less future income to replace. A life insurance calculator can help you assess your needs. Be sure your beneficiaries are up to date as well.

Any premiums you save by reducing your life insurance could be allocated instead to long-term care insurance, disability insurance or health savings accounts for out-of-pocket healthcare expenses during retirement. Consider your potential needs and plan accordingly.

Step four: Monitor your debt repayment progress

If you have debt, you’re not alone. But it’s important to review your debt — including credit cards, student loans, home mortgages, car loans, home equity and personal loans — to determine how much you’re currently carrying. Then assess whether your current repayment strategy is achieving your goals. If it’s not as effective as you’d like, you might want to try a different approach.

For example, some people virtually stop using credit cards until they’re out of debt. Others take a “snowball” approach, making minimum payments on all loans or cards except the one with the smallest balance. That debt receives extra payments until it’s paid off, allowing you to move on to the next lowest debt. For many, a better strategy is the “avalanche” approach that involves organizing your debt by interest rate and paying off the highest interest rate debt first. The important thing is to understand your debt and have a plan for managing it.

When considering possible debt payoff strategies, be sure to identify an approach that is manageable and incentivizes you to follow through. The “snowball” approach typically allows you to pay off various sources of debt at a faster pace. Alternatively, the “avalanche” approach may prevent you from spending additional dollars in interest payments. Regardless of the method you select, the assumption is that you have income available to apply toward debt repayment.

“Determine a comfortable amount you can dedicate toward this goal, then develop a game plan,” said Elizabeth Bartlett, Commerce Financial Planner with Commerce Trust. “I recommend tracking your progress so you can see the impact you’re making over time. Understanding your cash flow and establishing healthy financial habits may help prevent you from repeating this exercise in the future.”

Step five: Review your will and establish or review your estate plan documents

A mid-year checkup isn’t complete without a look at your will and estate plans. Your personal circumstances change over time, and your plans must often change with them.

Perhaps you’ve moved to a state that has different laws governing taxes and estates. Maybe you received an inheritance, or your spouse has become disabled. It could be that you’ve added a new child, or a dependent child has grown into an adult. The executors or trustees you named originally may no longer be willing, able or appropriate to perform their responsibilities. Your estate may have grown larger and more complex, requiring the services of a third-party executor or trustee.

These are just a few of the many factors that can impact your plans — and the finances you should take into consideration to achieve your goals. Reviewing these documents regularly and adjusting for major life events helps ensure that your legacy is passed on according to your wishes and that your beneficiaries receive their inheritances as smoothly as possible.

“Thoughtfully consider your situation and determine how you would like your estate handled in your absence,” Bartlett said. “Your well-crafted estate plan allows your wishes to be carried out properly, and a good estate planning attorney can assist you in putting this together. Though it may be uncomfortable, open communication with your loved ones is key — by taking a proactive approach, those most important to you will be well-prepared and provided for once you’re gone.”

The bottom line

A mid-year review of finances can accomplish several things. It gives you a reason to consider your near- and long-term financial goals, and it helps you see if the decisions you’re making are keeping you on track to meet them. It also allows you to take care of housekeeping issues that, if neglected, can hurt the ones you love most when you’re gone.

Like any good checkup, it will either affirm what you already know, or it will tell you what changes are necessary. And once it’s over, you’re free to enjoy the rest of the summer.