Mid-Summer Financial Check Up
It seems like when summertime hits, time slows down. The hustle and bustle of the holiday season is over, taxes are complete, and vacation days are scheduled. If you find yourself with some extra time on your hands in the upcoming months, you may want to use this opportunity to check in on your family’s finances. While conducting a thorough analysis of your wealth may sound intimidating, we’ve broken this process down into 7 simple steps to keep you focused and on track.
Step 1: Analyze Your Expenses
In early 2023, the Bureau of Economic Analysis reported that the average personal savings rate was only 4.7 percent. An effective way to avoid spending more than you are earning is to step back and take stock of your monthly and annual expenses. We refer to this as your “burn rate.” If you don’t have a budget at all, use this time to make one.1
At Sandy Cove, we prefer to have clients come up with an estimated monthly expense number and let them use their discretion as to how they manage their non-essential items. They know what their fixed costs are, such as mortgages, car payments, etc. It’s up to them to prioritize going out to dinner, vacations and shopping.
To assist in the analysis of expenses, many credit cards or banks will offer categorical breakdowns of your spending, which can be a great way to find to determine if there’s room to cut back. To get the best look at your spending habits, you may want to evaluate your savings and spending record over the past 6–12 months. It's amazing how this "creep" factor can wreak havoc with your spending.
After you have reviewed your expenses, think about the rest of the year, and make sure you have reserved for both planned and unexpected expenses.
Step 2: Review your Credit Cards and Bank Accounts
An alarming 35 percent of adults carry credit card debt from month to month. If you are guilty of putting off managing your expenses, now’s the time to start planning to pay them off. While most consumers have some amount of good debt on their plate (mortgages, car payments, etc.), it is the bad debt (credit card debt, student loans, etc.) that you will want to focus on managing and eliminating.2
There is a silver lining to the rising interest rate environment of 2022 and 2023: better yields. Investments like money market funds, certificates of deposit and high-yield savings accounts are earning yields more than 4.0%, while your bank checking and traditional savings accounts may be earning under 1.0% or be non-interest bearing. Keep minimal cash balances in your checking account for monthly expenses and seek higher-earning alternatives for your excess cash balances.
Step 3: Revisit Short and Long-Term Goals
Many of us create goals at the beginning of the year and it is a great idea to visit your goals a few months later. A lot can change in a year—marriage, death, divorce, growing your family, and experiencing a major career change. Even seemingly small adjustments, such as a job promotion or sending a kid off to college, can have a significant impact on your financial status. This is why it is important to regularly review your long-term goals and assess your progress toward them while revisiting and evaluating your shorter-term goals.
Step 4: Evaluate Providers and Auto-Pays
As you are reviewing your budget and expenses, take the extra time to evaluate your current providers thoroughly. This includes your internet, cable, and wireless service providers. If you tend to set up auto payments and forget about your monthly bills, this could be an opportune time to review the actual bills.
Recently, we uncovered Apple Pay fraud in one of our client’s American Express credit cards. This client had the credit card on “auto-pay” from her checking account and did not detect the fraud until months later. Review your auto-pays to eliminate services that you may not be using (gym memberships, streaming services, etc.).
Step 5: Assess and Rebalance Your Portfolio
It is important to review your portfolio to determine if your asset allocation is in line with your goals, time horizon and risk tolerance. Rebalancing means selling some stocks or bonds so that most of the time you are at your target asset allocation which matches the level of returns you are trying to achieve with the appropriate level of risk. While most managed portfolios are rebalanced automatically, it is important to review your investment portfolio to make sure you are still comfortable with the mix of stocks, bonds and cash.
Step 6: Review Your Retirement Savings
Whether your retirement is decades down the line or coming soon, reviewing your retirement savings on an annual basis is a great habit. Take the time to assess whether you’re maxing out your retirement contribution options. If you are over 50, you will want to take advantage of Catch-up contributions which allow you to save more in your 401(k) and individual retirement accounts which will boost your retirement savings.
Step 7: Assess Your Estate Plan
Summers are for spending time with family, with more opportunities to come together relaxing at the family vacation home, traveling or simply enjoying a backyard barbeque. These get-togethers offer the perfect opportunity to address key aspects of your estate plan. As you assess your legacy plan annually, make sure you are accounting for any new engagements, marriages, grandchildren, homes, etc. This is actually a great time to talk to your family about building a thoughtful estate plan to protect you, your family, your assets and ultimately your legacy.
While you are likely daydreaming of reading books, going to beaches, and barbecuing your backyard this summer, don’t forget to do yourself a favor and squeeze in some financial assessment as well.