Mid-year financial checkup: Plan for second half of 2024
Here's how to refocus your financial goals for a strong finish to the year.
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00:00Liz Miller, Certified Financial Planner and Founder of Summit Place Financial Advisors.
00:05Welcome to the street.
00:07Hello, thank you.
00:08So we brought you here today for our mid-year financial checkup.
00:13So, let's start first with the plan.
00:15If you don't have a concrete financial plan for the year, how do you create one and what needs to go in it?
00:23So, everyone should have a plan, we say, no matter what.
00:27Like, how do you know if you're on track for whatever you're trying to achieve if you don't have a plan of some kind?
00:33It's great to work with an advisor who can help you build a plan, but there's a lot of steps you can take yourself.
00:38So, we say the very first step is an inventory.
00:41And that means make a list, as tedious as that sounds, of, you know, your checking accounts, your credit card balances, everything you have, take in, or owe.
00:54And write it all down.
00:56And you'd be surprised how good it feels just to, like, even see that in front of you.
01:00And that gives you that starting point to say, okay, here's what's coming in the door, here's what needs to go out the door, here's my bucket of any savings or assets I have, and then here's what I'm going to have to pay out.
01:12And it starts making it very clear where you're going to start that planning.
01:17And so, if someone wants to create a budget, what is your advice for an easy plan that they can stick to?
01:27That's so great.
01:29You know, I can tell you as a professional, I have a million of these detailed spreadsheets that someone thinks you're going to hand to a client and say, write down for the next six months how much you're going to spend, right?
01:40And there are a few people who love that, but most people can't stick to that.
01:44What we say is a great starting point is to remember the 50-30-20 rule.
01:50See that money that's coming in that we talked about?
01:5350% of that should go to your essentials.
01:55Now, if you live in New York City, like we do, that might be a little higher because housing costs are so high here.
02:01So, if you're in a major city, don't worry if it goes a little higher than that, particularly when you're starting out.
02:06But 50% should be your rent or your mortgage and those fixed payments that you can't do anything about.
02:13Then 30% should be the things you choose to spend money on.
02:18How many streaming services do you want every month?
02:20Maybe you need to cut back on one or two, right?
02:23Going out with friends, what is weekly brunch cost?
02:26That's your 30%, all those ones where you're making choices.
02:29Do I go out this weekend or do I buy new clothes?
02:32And then 20% should be your target to be putting aside every month for savings.
02:37And some of that may be paying down debt, but some of it definitely should be funding your first account that we call an emergency fund,
02:44where you're building enough money that should anything happen unexpected, you've got some money put aside for those emergencies.
02:51So, we're halfway through the year.
02:54What tweaks should people be making now?
02:58So, the big tweak now is to see where have you been.
03:01Maybe your resolution in January was to get better control of your spending, but it was just too overwhelming.
03:08And you tried sort of keeping track of anything and nothing happened, right?
03:11So, this is the time to see, am I spending a whole lot more than 30% on those choices?
03:17That's the bucket I always say to start with mid-year.
03:19How much are you spending on the things you have control over?
03:22And when you list them out, can you make some proactive decisions?
03:26I know someone who was a Starbucks addict, and what they did was decide, you know, get that courage at home,
03:33and they went to Starbucks once a week, and the other days off to work, they took a mug with them of their own coffee.
03:38Well, oh my gosh, that started, you know, it was like $100 over a month that now got to go into savings.
03:44So, little things that you really can live with, but when you make, like anything, like a workout goal,
03:49if it's too big a goal, it's not going to work.
03:51You really have to look, well, where am I spending all these things, and what ones can I actually make a change to?
03:57So, we're in the heat of summer.
03:59Maybe people have already taken summer vacation, gone to family reunions.
04:04Maybe they've spent too much on their hotel bill or airfare.
04:08Maybe they had too many pina coladas at the pool.
04:11So, what is your financial emergency repair plan?
04:15So, the emergency repair plan these days has to start with credit card.
04:20If you've spent a lot and put it on a credit card, you now need to make that the priority.
04:25Even though we think interest rates may come down, that just means you're going to be paying, you know, 22% instead of 28% on your credit cards.
04:34So, the first thing we want to do is take any extra savings we found from that 30% we reviewed
04:40and pay more than the minimum on the credit cards right away to start getting those out of the way.
04:45Now, again, I think what happens is when we say pay the credit card down, pay the credit card off,
04:50for some people it's like, I just racked up $3,000.
04:53I don't know where that money's coming from.
04:55So, then they get so overwhelmed, they do nothing.
04:58And we say that's not the place to do it.
05:00The place to do it is how can we do it in a way we really can achieve?
05:04So, if the minimum payment's $100, let's try paying $120 this month.
05:08And what we want to do is just pay more than the minimum because that starts making a real dent in that balance.
05:14And then when you start seeing some success, a lot of times you find you even can pay a little bit more.
05:19You start seeing that you're accomplishing this and you're like, I can get to this goal.
05:24So, again, we want to do it in a way that people can really live with.
05:28So, let's stick with spending for a minute.
05:31Someone comes into your office, you sit down with them, their spending is totally out of whack.
05:38How do you get them to prioritize their spending?
05:43Since you already said you can't get them to stop spending, so what are your tactics or tools to get people to prioritize their spending?
05:51So, we like to really start without those numbers at all and say, hey, when you think about money in your life, what does that mean to you?
06:01How do you think about money?
06:02And people who spend a lot often come from families where there wasn't a lot of talk about savings.
06:08There may have been talk about making ends meet each month.
06:11There might have been money lessons where it said, well, you have your allowance, go spend that, right?
06:18You just didn't grow up with a culture that said all the time how much of that is going into your savings.
06:24And so you're really taking someone where they're suddenly being told that lessons they had their whole life aren't going to get them where they want to go.
06:33And so we want to do that in a thoughtful way and say, well, when you think about being financially comfortable, what does that look like to you?
06:42What does that mean?
06:43Some people are going to tell me, oh, that means house at the shore, as we say.
06:48You're like, OK, but you're sitting here with all that credit card debt.
06:51But some people, it's just, you know, I want to be able to help my family every month.
06:56I want to be able to send money here.
06:58I don't want to have to worry about paying the bills every month and not having anything left extra.
07:04So when we start getting them to really put into words, what does it look like to you to be financially comfortable?
07:11Then we can start there and say, oh, you said that for you to be financially comfortable, there was a little something extra every month to help the rest of your family.
07:21OK, let's now go back and look at your spending and think about which of those things are you doing because it's just become habit and you're not even thinking about it.
07:31And so how do you feel about high yielding savings accounts?
07:34What roles should those play in the kind of savings pie of this financial mid-year checkup?
07:43A lot of times the high yield savings accounts are competing with the money market.
07:48So if you're getting similar yields, they're great.
07:50And I kind of call them both your liquid savings.
07:54And that goes back to, you know, all the people we've talked about how to build a little savings, how to have some emergency savings.
08:00So that high yield savings account is a great account to earmark as your emergency spending.
08:07So keep putting money in there till you have maybe three months of income.
08:11Sometimes we even say six months of income.
08:14If you're alone and single, try to build that up so that if something does go wrong, you need a new car, you find yourself temporarily unemployed.
08:23You've got those savings to help get you through.
08:26And the high yield savings or the money market is a great place for that kind of money.
08:31All right. Let's transition to retirement, which is a form of savings.
08:34Right. So what's the best way to play catch up?
08:40Right. It's the mid-year financial checkup.
08:44And you realize that you're not where you want to be in terms of saving for retirement.
08:51Now, here we are, middle of the year. What's the best way to to play catch up?
08:56There's a lot of ways to get there. Right.
08:59First of all, I would say there's a lot of great, we call them calculators online. Right.
09:04Take a look online. See what it shows you.
09:07We kind of like to say, depending on your age, think about trying to accumulate about ten times your income currently to be ready for retirement.
09:16So that's just a rule of thumb to get started.
09:18So if you find you're behind the eight ball, you know, the easy answer is, I guess I have to save more.
09:24But how do we do that? If you've got a 401k plan or a 403b at work, a lot of times we find people are only contributing up to a match.
09:34And they'll tell you, oh, I'm at the maximum. I get the full match.
09:37And we say, no, no, no. So let's go beyond the match.
09:41So the first thing is that is always one of the best ways to save at work.
09:45It comes right off your paycheck. And those are usually great programs.
09:49So if you can try upping for the second half of the year, how much you're taking out for your 401k.
09:56You can usually adjust those a lot.
09:59I work with a lot of young people in their 20s where when I have a discussion with them, they don't even really know what they can live on.
10:06So we say, well, let's move it until you feel a little pain.
10:09You let me know and then we'll pull it back.
10:11So we kind of keep pushing more and more of their paycheck to be immediately taken into that retirement plan.
10:18Another way to do it, particularly if you don't have a retirement plan at work, is to, again, take it right off the top.
10:26Set up a transfer from your checking account where your paycheck comes right into like a Roth IRA.
10:33You know, open a Roth IRA at a Vanguard or a Schwab.
10:36They make it really easy. And then you link your checking account and you set up an automatic deposit every time your paycheck comes in so that it doesn't end up in that spending bucket.
10:47You take it right off the top.
10:49So this is one of the questions that we got the most, and it has to do with 401ks from previous jobs.
10:57People want to know what should they do. Should they leave it where it is at the old job and don't do anything and it's just growing over there?
11:05Should they roll it over into the 401k with the new employer or should they roll it into some account with like Schwab or T-Row Price or Fidelity or something like that?
11:18That's a great question. So there's two things we want to keep in mind when we have these discussions.
11:24First, I want to get to know you a little bit. Is it going to be hard for you to remember you have them at three different locations?
11:30So there's definitely a convenience factor if we find someone has trouble keeping track and doesn't pay attention if they're different places.
11:37So that itself to me says let's combine it all in your current 401k if your plan allows for it.
11:44Not every plan does, but a lot of plans will let you roll in old 401ks to your current 401k.
11:50So if you're the type of person where it's all about organization, then the simple answer is move it to the current 401k.
11:59If we're going to go to the next level of analysis, we're going to look at the previous ones and the current ones.
12:05Do you like your investment choices in the current ones? Are you paying any fees up to your employer in the current ones?
12:12Some plans, particularly if you're in a larger company, there is sort of maybe no maintenance fee. The employer takes care of that.
12:18If you're in a smaller company, maybe once a month or once a quarter, there's a few dollars coming out of your 401k for administrative costs.
12:26So figure out if your old plan does that too or not.
12:30Also, if your old plans, if the balances are small, you may not even realize that they're now charging you more money.
12:37You know, you might be getting charged $10 a month, $50 a quarter to maintain it there because it's not a real big balance.
12:44And again, we were just talking that we don't always look at statements.
12:48And I think I find that really common with old 401ks because you don't get a statement.
12:52You have to go log on and remind yourself.
12:55So go log on to the old ones. Look at the recent transaction history.
12:59And so the first thing you want to see is are you getting hit with any fees at that old 401k?
13:04If not, if it's still working just fine, then it's really comparing the investment choices, what you want to do.
13:12A lot of people are gig workers, right? A lot of people are working different jobs, freelance.
13:18So in terms of a mid-year financial update and taxes, what should they be looking at now to make sure they're on track for end of the year April?
13:31Great question. And you're so right.
13:33We get a lot of people in part-time gig contract work and they look up surprised that they have to pay taxes at the end.
13:40So if you are doing that kind of work, you should be getting 1099s next January from those companies you've worked for.
13:48But it's really the government's view that it's your responsibility to keep track of that.
13:53So summer is a great time to just get all those payments together.
13:57Maybe check your checking account, everything you deposited.
14:00If you've never used an app, maybe it's time to try like a YNAB.
14:06Maybe you need a budget where you can keep track of what's coming in or whatever your favorite way is to track this.
14:13A lot of banks now let you kind of aggregate money from other places.
14:17You want to be able to see how much money has come in so far this year and keep track of that.
14:22And see if any of them, sometimes they will withhold taxes if you ask, but usually they don't want to.
14:28So you want to get a checkup. You want to see where you are.
14:32And know, well, here's my taxes last year. I'm on track to be making 20% more.
14:37I'm probably going to have to be saving more on taxes.
14:40And if you were surprised last year, by all means, start realizing, oh, I really need to start putting money into that high yield savings account for taxes next year.
14:50Now, one of the big themes this year has been the Magnificent Seven, right?
14:55And if you're in an ETF or you're in a mutual fund, you're probably exposed to it if you're in high growth.
15:02So how should someone manage big positions in their portfolio, given the outsized gains from the Magnificent Seven?
15:13Yeah, yeah. As you said, if you're in a diversified exchange traded fund or a mutual fund, you've probably benefited from it.
15:21And there's not a whole lot you can do. If we do get a correction, you will get that correction as well.
15:26The big difference is, as we know, the S&P 500, the NASDAQ 100, people look at these and say, well, how am I doing compared to them?
15:36And do I own those stocks that are really driving those indices?
15:40But what you and I know is 500 stocks in the S&P 500, you know, the top 10 are now almost 30% of the performance.
15:49The 490 are doing nothing. So if you have an individual stock portfolio, you may own a lot of names doing nothing.
15:56And you shouldn't think there's anything wrong with your portfolio.
15:59If you've got that ability, then it's a good time to maybe trim those oversized positions so that you don't have that same up and down risk going forward.
16:08But if you're in a bunch of mutual funds, you could take a little profit off the table, but you're going to get the roller coaster ride of the market.
16:17And the truth is, there's nothing wrong with that. What's important is that if you have the timeframe, you're 20, 30 years old, you've got many years till you retire.
16:26Being in one of those funds is great. It's low cost. It's tax efficient.
16:30The trick is now don't get scared out of it if we do see a 20% correction in the market from these, because every research tells us, every study that's been done, just stick with it.
16:42Leave your investment. If you're investing regularly, keep investing. Usually within 18 months to two years at most, you've come all the way back.
16:51So we talked about freelancers and the gig economy. Let's talk about the broader taxpayer, right?
17:00In terms of a mid-year financial update, what should all taxpayers be looking at as we are in the middle of the year?
17:10A couple of big things we always want to talk about. Let's start just with your income.
17:14You want to take your latest W-2, and you want to look at what has been withheld so far this year, and you want to compare it to last year.
17:22You want to say, well, what were my taxes last year at this point, and am I far ahead?
17:28If you work with an accountant, send them that W-2, because what we're trying to figure out is, am I withholding enough?
17:34This is the time of year to make an adjustment to say, whoa, I don't think I'm keeping enough out of my paycheck,
17:40and I don't want to have a big amount I have to pay Uncle Sam next April.
17:44So first look at your W-2 earnings so far this year compared to last year, and how much taxes have been withheld in your state and federal so far this year.
17:53If you feel like you need more to be taken out, then contact your human resources people, your benefit people,
18:00whoever helps you make those changes, and ask about, how can I get more taxes withheld from my paycheck?
18:06So number one is your income. Then with that, maybe you have to pay estimated taxes, and you realize that you're going to have to owe more.
18:14That, you probably work with an accountant who maybe told you what your estimated taxes are.
18:18Send them your W-2 and say, hey, here's how much we've paid so far in April and June. Am I on track?
18:25Should I be paying a little more in September and next January to make sure I've paid enough in my tax planning?
18:32Then finally, we're going to go to our portfolio, and you do want to look at, well, what have my gains been so far this year?
18:38If you have individual stocks and they've been traded, if you're working with an advisor, ask for an update on what your capital gains are so far this year.
18:46If you're doing it yourself, most of the websites will show you what your realized gains, they call it, for the year.
18:53What have been your realized gains and losses so far this year?
18:56So that, again, you can kind of see, am I going to have to pay taxes?
19:00So realized gains and losses, depending on your income, you're going to pay anywhere from 15% on that to up to 25% plus, depending on your income level.
19:11Great tips there for our mid-year financial update from Liz Miller.
19:15She is the founder of Summit Place Financial Advisors.
19:23Summit Place Financial Advisors