by Landon Buzzerd, CFP®
July 2024
As we reach the middle of 2024, there is no better time to check-in on your personal finances. A mid-year review does not mean a full in-depth audit of your entire financial history. Rather, it is a concise review of the first six months of the year and a forecast of the remaining six months. The objective of this semi-annual exercise is to ensure you are positioning yourself to achieve your short-term and long-term goals. If you are confident in your abilities to manage these items on your own, use this list as a resource. If you are unsure where to start, reach out to the experienced team at Grant Street Asset Management for guidance.
Here are the top three action items for your mid-year financial check-in:
1. Evaluate Your Cash Flow Needs
Reassess monthly spending year-to-date. Review your household income statement and if there are more expenses than income, identify expense areas that can be trimmed. Before you can even determine an appropriate emergency fund, you must determine the average amount your household needs on a monthly basis (mortgage, utilities, groceries, debt payments, etc.). On the other hand, if there is an income surplus and no foreseeable expenses to account for, the next few bullet points identify the best place for that cash.
Take inventory of your current cash balances and other short-term reserves. Ideally, you should aim to have three-to-six months of your household living expenses in cash and/or accounts that are easily accessible and are not in jeopardy of losing value. This may include your checking and savings accounts, certificates-of-deposit, money market accounts, and physical cash.
Account for lump sum expenses in the foreseeable future. If you are planning to incur large expenses in the next six-to-twelve months such as a home renovation/repair, new car purchase, or a family vacation, a cash reserve above and beyond your three-to-six months of emergency savings may be necessary.
Allocate surplus cash. If you have lived below your means for the first six months of the year and have accumulated cash in your bank account, you must do two things: 1) Give yourself a pat on the back 2) Decide where to allocate that cash. If you do not have a fully funded emergency fund, this should be the top priority. Next, consider your current interest rates on any outstanding debt versus the potential return you could receive from investing the cash at an allocation you are comfortable with. If your current mortgage rate is 4%, your surplus cash is most likely better off invested where the potential return is greater than 4%.
Check-in on your remaining RMD. If you are age 73 and older or are subject to Required Minimum Distributions (RMDs) from an inherited IRA, verify the amount you are required to withdrawal from the account before the end of the year. Although you have until 12/31 to satisfy your RMD for the year, some elect to withdrawal an equal amount each month throughout the year to satisfy their RMD for the year. There is a penalty for any amount of your RMD not withdrawn prior to year-end.
2. Portfolio Review
Rebalance. This should entail more than checking the market value of each account, though that is important. What is the current split between stocks and bonds for the account(s)? Stocks have performed well for the first part of 2024, whereas bonds have been flat or even negative. The stock portion of your account may now account for a larger portion of the account than you were initially comfortable with. For example, you are comfortable with 50% in stocks and 50% in bonds, but due to the growth of stocks, they now account for 60% of the account. In this case, selling some of the stock portion and reallocating the proceeds from the sale into bonds, otherwise known as rebalancing, may be prudent.
Tax-loss harvest. During the rebalancing process, it’s important to ensure tax efficiency. Identify positions within your portfolio that are worth less than your cost basis (the amount you paid) and sell those positions to capture a capital loss. This loss can be used to offset any gain the portfolio has already realized or that you intend to incur later in the year. This activity is formally known as “tax-loss-harvesting”. This applies to taxable accounts, not your 401(k) or IRAs.
Revisit contributions. July is a great time to review your year-to-date contributions to a workplace retirement plan or other accounts like an IRA or Health-Savings-Account (HSA). Consider increasing your contribution amount to capitalize on the benefits provided such as tax deductions or tax-free growth. It is important to note that each account does have an annual contribution limit. Therefore, you should strive to maximize your contributions, but not exceed them. For example, a breakdown of the 2024 limits are as follows:
Account | Limit | Additional |
401(k) or 403(B) | $23,000 | $7,500 if account owner is 50+ |
IRA (traditional or Roth) *Direct Roth IRA contributions are subject to income thresholds. | $7,000 | $1,000 if age 50+ |
HSA *Must meet eligibility criteria. | $4,150 (single) $8,300 (family) | $1,000 if age 55+
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3. Prioritize Outstanding Tasks
Plan for your estate. This item is often delayed because of the difficult decisions involved. At the bare minimum, you should have financial and healthcare power-of-attorney documents drafted by an attorney. These documents will name someone to make decisions on your behalf if you become incapacitated and can no longer do so. Review the listed beneficiaries on your retirement accounts and insurance policies and ensure that the named beneficiaries match your wishes. If you have assets outside of retirement accounts and/or life insurance policies, you should have a will or possibly a trust, depending on what you wish to achieve. Although these tasks may seem daunting, your future generations will be grateful for the forethought.
Insurance policy review. If something were to happen to you, would your family have the resources available to maintain the lifestyle that you have enjoyed? Adequate disability and life insurance policies provide a sense of security over this concern. Although it may be time-consuming and confusing, it is important not to push it aside. Seek a reputable insurance agent who will take the time to explain your coverage and ensure that you fully understand your policy and the protection you are paying for or seeking to purchase.
All the above. All the items above may seem overwhelming and time consuming, however, the more you engage in these activities, the more comfortable and confident you will be in securing your financial future. You may have never rebalanced your account or increased contributions or created a monthly spending plan, but these are just a few examples of the simple tasks you can implement now and revisit as little as twice a year.
Meet with the experienced team at Grant Street Asset Management. Many business owners and executives are often occupied growing their business or contributing to the goals of their company. As a result, tending to their personal finances seems overwhelming and exhausting. Our thorough planning process addresses each of these items and provides peace of mind. Grant Street’s team of advisors has partnered with generations of clients to achieve their personal goals and avoid common pitfalls. Attack your financial and personal goals with a team of experts in your corner.
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