(770) 344-0172

Jun 03, 2020

Mel's Money Minute: Mid-Year Financial Review

Mel's Money Minute: Mid-Year Financial Review

How are those 2020 resolution goals coming along? Were some of them interrupted by the COVID-19 crisis? Or, are you thinking, “what goals?” Regardless of your answer, now is an excellent time for a mid-year financial review. This does not have to be as involved and extensive as the overhaul you did when you made that New Year’s resolution six months ago. Circumstances may look a little different than they did this time last year, but this is a fantastic opportunity for observation and reflection on your financial behavior.

As we continue to enter uncharted economic and social realities this summer, it’s critical to focus our energy on behaviors and outcomes that we can control. When it comes to financial decisions, unsure circumstances can often lead to two extreme types of behavior. The first is impulse justification, where we allow the stress of our environment to justify spending habits that are harmful in the long term. The second is paralysis, where we are so overwhelmed by the changes around us that we simply neglect to self-reflect and plan for the financial future.

All of us are guilty of these behaviors from time to time, and it is imperative that we are proactively self-aware during times like these. Sometimes, the hardest step is the first, so we’ve brought you five tips for conducting your mid-year financial review.

1. Be Honest About Your Spending

Reflect on your expenditures from the past three months; this doesn’t mean you have to go through your credit card statement, but we encourage it. Simply think about any big-ticket purchases you’ve made since the beginning of the year.

Did these purchases fulfill a need or a want? Did they increase your standard of living? Were these purchases easier to make because you weren’t eating out or spending money elsewhere? Evaluate if you made these purchases to make yourself feel better, or if there was truly a necessity to be filled.

If you find yourself making purchases to fill emotional needs, take this as an opportunity to speak with a spouse or a friend about helping to hold you accountable. Work together on setting guidelines for your spending that will help control impulsive spending.

Now is also the time to be proactive on your spending plan. Since activities are limited, our planning for significant expenses and events should be more accurate, allowing us more opportunities for saving.

2. Prioritize Your Emergency Fund

An emergency fund is an amount of savings reserved for unexpected emergencies such as vehicle repairs, medical bills, or loss of income. This reserve can be kept as physical cash, or set aside in a savings account, checking account or Roth IRA. Regardless of your circumstances, we recommend that everyone prioritize building their emergency fund as we continue navigating the COVID-19 crisis.

Our advice is to save three months of expenses if your household has two income sources, and six months of expenses if you have one income source. “Expenses” should include household costs that would not stop if you were to lose your job. These expenses include your rent/mortgage, essential utilities, groceries, insurance, transportation, etc. If you would like advice on how much to set aside for your emergency fund, please contact us, and we’ll work with you on finding the right number.

3. Check Your Tax Withholding

Your withholding is the amount of taxes that are taken out of your paycheck every pay period. When you calculate taxes at the end of the year, the amount your withholding is applied to the amount due. It is essential to conduct a withholding projection for 2020 and see if you are on track for a refund or tax due. Be careful with the amount of the return- if it is a large amount, you may want to adjust your withholding; otherwise, you are basically giving the IRS an interest-free loan.

You can adjust the amount of income tax withheld from your paycheck by updating your Form W-4 provided by your employer. You may use the IRS withholding calculator to project your refund or tax due for 2020.

4. Check Your Credit Score

Checking your credit score is a soft inquiry, so it will not lower your score. Use any of the three major credit bureaus (Experian, TransUnion, and Equifax) to obtain a free report. If your score has dropped, review your credit report in detail. Are there any errors that you need to contest? Take the necessary steps to fix your score today.

5. Plan for the Holidays

Now is the time that we all wish we would have started Christmas shopping instead of visiting the dreadfully crowded malls two weeks before Christmas. Well, here is your friendly reminder! It is also important to think about what your holidays might look like if current conditions continue. If things are financially tight, consider a gift exchange where you are only responsible for a single-family member. I tried gift exchanging with my family last year, and I can attest to the benefits of this approach. We were all reminded of the reason for the season. Holidays can be a stressful time, even though it should be a time for gratitude, so plan to fully enjoy your holiday season.

It’s essential that we evaluate how our financial behaviors, good or bad, have evolved throughout the past few months. If they are good now, how are you going to continue down this path? What will you do to make sure you do not fall back into old habits? As always, if you have questions regarding personal finance, feel free to reach out to me or anyone on the Narwhal team.

Melissa Dotson, CFP®, CSLP®

Financial Planning Associate

Melissa came to Narwhal in the summer of 2018 following the completion of her master’s degree in financial planning from the University of Georgia, where she also earned her bachelor’s degree in consumer economics. Her interest in the field started with learning about consumer behavior, specifically its relation with complex moneymaking decisions. Melissa recently received her CFP® Certification in January 2021. Working with a CFP® professional can help you find the path to achieving your financial goals. Your goals may evolve over the years as a result of shifts in your lifestyle or circumstances such as an inheritance, career change, marriage, house purchase , or a growing family. Melissa is here to help you through that process. When she’s not working, Melissa enjoys cycling, cooking, and spending time with her beagle and two nieces.

Let’s start the conversation.

At Narwhal Capital Management, you’re more than just a portfolio, and it’s not all about the numbers. Let’s start with a meeting about your needs and future goals.