You did what you were supposed to do financially at the
start of the year. You established or reviewed your financial
plan to be sure its goals and strategies were still appropriate,
rebalanced your investment portfolio, made sure your estate
plan was in place, checked your insurance coverage, and so
on. Give yourself a round of applause.
You probably don’t want to think about your financial
plan until next January. But you might consider doing a midyear
mini-review just to make certain you’re still on track
and to tweak a few things. Here are some places to start.
Taxes. Did you either receive a sizable refund or owed a
chunk of money in April? If either one happened, now’s
a good time to correct that for 2005 by projecting your taxes
for the year and changing how much you are having withheld
from your paycheck or you’re paying in estimated taxes.
A substantial refund suggests you’re overpaying taxes
during the year. That’s money you could have invested
or saved. To reduce the size of the refund, increase the
number of allowances you claim on your W-4 form at work (or
pay a little less when estimated payments are due this June,
September, and January). Do the reverse if you owed money.
Budget. Review your household budget or spending plan. Are
you on track? Do you have a good handle now on where you
are spending your money? Do some categories need adjustment?
Are you saving 10 to 15 percent from each paycheck?
Fringe benefits. Many companies hold open enrollment in
the fall for fringe benefits, so this summer is a good time
to start thinking about them, especially health care. Your
employer may have changed health care plans, for example,
or the existing plans may have new wrinkles, prompting you
to switch plans. Perhaps your family circumstances have changed,
such as the addition of a child, so a new plan is preferable.
Retirement accounts. Have you received a raise this year
that might allow you to put more into your retirement plan
at work, or if a plan’s not available at work, to contribute
more to your individual retirement account? For example,
you can put in up to $14,000 this year in a 401(k) or 403(b)
plan, and another $4,000 if you’re age 50 or older.
Flexible spending accounts for health care. These employer-sponsored
accounts allow you to divert wages into an FSA account tax
free and take money out of them tax free to pay for qualified
out-of-pocket medical expenses. They can be a very good deal
for employees. The catch is that you forfeit any balance
not spent by the end of the year—a deadline the U.S.
Treasury has now extended from December 31 to the following
So now’s a good time to see what’s left in the
account to be sure you use it up by the deadline and to help
you estimate how much to have withheld for next year. Remember
that you can use FSA money for such things as eyeglasses
and many over-the-counter drugs.
Investments. You probably shouldn’t be making major
changes to your portfolio at this point, but you might want
to make some tweaks to it.
One tweak to consider is taxes. The decision to buy or sell
an investment should generally be based on your needs and
the economics of the investments themselves, not taxes. But
say you’ve sold off some winners this year. Consider
offsetting some of those taxable gains by selling off some
losers. Or if you’ve sold off some losers, consider
selling winners, which would offset their gains by establishing
a new investment basis. You can then turn right around and
rebuy the winners without worrying about wash-sale rules.
Assuming that your portfolio had the right mix of assets
at the start of the year, you may not need to make adjustments
until next year. But if a portion of your portfolio has done
extremely well or extremely poorly, you may want to rebalance
the portfolio to bring the proper mix back in line.
Charitable donations. Yes, you can wait to the end of the
year to make planned donations. But consider avoiding the
rush, which can lead to mistakes, and get a head start now.
Perhaps appreciated securities will make the perfect donation.