A mid-year financial check-up is important in a year in which the world doesn't want us to get too comfortable.
The first half of 2010 is yesterday's news. But whether news is good or bad the remainder of the year, you can't deal with it intelligently unless you fully understand your current condition. In some cases, corrective action should be prescribed.
"Everyone is breathing easier because the world did not end," observed
Get started by writing down all your sources of income in the first half of the year. Use your checkbook and credit-card statements to list all expenses for that period. Subtract that from your income. If cash flow is positive, that's a good sign. If negative, it indicates how much you must decrease expenses to improve your situation.
Use this to project income, expenses and savings for the second half of 2010. If some of what you budgeted in the first half of the year turned out to be unrealistic, adjust accordingly. Diagnosing your spending habits helps prescribe a workable budget that includes regular savings and investment.
"My clients are seeing and hearing more of the negative than the positive things," said
Review your half-year gains and losses in stocks, mutual funds and fixed-rate investments to see whether your portfolio needs rebalancing. Then seek out current bargains.
"The first thing to do at mid-year is ask yourself whether you need to rebalance your portfolio," said
The most difficult part of an investment plan is staying disciplined with your allocation even though temporary events may draw your long-term logic into question, he said.
With an asset allocation plan, some portion will include bonds. Many experts believe long-term interest rates will drift back to their historical norms or higher. Existing bonds with lower rates would decline in value versus new higher-rate offerings, so you may want to reduce your exposure to bonds greater than five years duration and shorten maturities, Ferrara advised.
Zohlen sees merit in shorter-term bonds over some other choices.
"I don't do a lot of tactical moving of money, but one thing I am doing is staying away from TIPS (
Your debt can land your finances in trouble. Go over all you owe and pay off highest-rate debt first. Develop a plan to pay down credit-card bills, loans and car payments as quickly as possible so that in the long run you'll have more to invest.
"Credit card debt carries the highest interest rate, so if a client has
Set realistic goals. Choose short- and long-term targets, write everything down and reassess every six months. Invest the maximum in employer-sponsored retirement plans and inquire about the strength and solvency of your firm's pension plan.
Be insured. Review all your insurance coverage, taking into account those dependent on you. Examine life, homeowners, auto and disability coverage you carry to see if it meets current needs. Make or update a will and estate plan. Give someone durable power of attorney in case you become incapacitated.
We're not out of the woods yet, with potential economic and market problems ahead. Build an emergency fund of three to six months of living expenses in a liquid money-market or short-term bond fund.
Here's what financial planners are concerned about in the second half of the year:
"The most worrisome thing to me would be interest rates being held artificially low for too long because it will mean that money will be just too easy to get," said Zohlen. "Companies love this because they get cheap money to fund capital projects, but the stock market reacts by going up very quickly and then painfully correcting."
"I would not be surprised to see an interest rate increase in the last quarter of this year," said Capelli Dimitroff. "The government is committed to low rates for an extended period of time--but that usually means until the Fed changes things."
"What worries me the most is if companies don't start hiring more people and what that would do to consumer confidence and the recovery," said Ferrara. "That continued high unemployment could really stall the recovery."
- Mid-Year Financial Check-Up Important As Economic Woes Linger
- 10 Uncommon Sources of Income in Retirement
- These Banks Want to Help You -- Really
- How to Find Affordable Long-Term Care
- Why Some Women Skirt the Wage Gap
- What Health Care Reform Means for Medicare Drug Coverage
- Who Got Hit Worst in the Market Crash
- Sizing Up Your Retirement Nest Egg Needs
- Biggest Sources of Retirement Income
- Assembling a Sturdy Retirement Portfolio
- Withdrawing from Retirement Accounts Early without Penalty
- Social Security Inflation Adjustment Debate
- Steps to Relief From Federal Student Loans
- Funds for Recent College Grads
- Biggest Sources of Retirement Income
- Smart Moves for Tomorrow's Higher Interest Rates
- 10 Ways to Reduce Your Summer Utility Bills
- Small Changes to Get out of Debt and Save Money
- New Grads and Health-Care Reform
- Tax On Health Benefits
- Make the Most of Health Care Reform
- Don't Neglect Long-Term Care in Retirement Planning
- How the Health Care Bill Impacts Retirees
- Keeping Adult Children on Your Insurance Policy
- The Challenge of Deducting Medical Expenses
- Health Care Reform Overhaul: What Happens When
- Older Americans Comment on Health Care Reform
- Jobs With the Best Retirement Benefits
Personal Finance - Mid-Year Financial Check-Up Important As Economic Woes Linger
(c) 2010 Andrew Leckey