It’s been a wild first half of the year and now is a good time to assess where you are with your current financial plan. In the third article in this series, we focus on the items that can help you stick to a well-constructed financial roadmap for the next three months.
FIRST OF ALL, ENJOY SUMMER!
The stock market has been on a rollercoaster, and inflation is dominating the news cycle. Neither development is likely to put you in a great mood — but neither is likely to have an effect on your long-term financial plan. Allow yourself a little space to ignore the noise.
July happens to be one of the few months out of the year when nothing much happens, from a financial or tax planning perspective. So, get out and enjoy the summer weather and long sunny days with your family and friends. Take that spontaneous long weekend trip you’ve been keeping in the back of your mind. To borrow from one of our favorite songs, “Live the life you love, and love the life you live!”
And if you have time after you’ve enjoyed a bit of “me time,” mid-year is an excellent time to check your asset allocation in your long-term retirement accounts to make sure it is still aligned with your target stock/bond mix. Stocks have been hammered as of late while bonds have bounced back just a smidge from their lows over the past several months. Consider rebalancing your portfolio if one asset class has become too dominant due to recent strong performance. (Rebalancing means you sell assets that have appreciated in value and invest in assets that have depreciated, so you wind up back at your desired mix of stock and bond funds.) In addition, with the recent uptick in prices for everyday goods and services, this is also a good time to see if you have sufficient inflation-hedging assets in your portfolio — especially if you are retired or nearing retirement age.
GET READY FOR BACK-TO-SCHOOL
When it’s back-to-school time, many families are hooked by deep discounts on apparel and supplies at the big department and discount stores. Instead of spending all that back-to-school money on shopping, consider setting aside some education dollars in a 529 college savings plan or Education IRA. Although contributions are not deductible in a 529 account, earnings grow federal tax-free, and qualified withdrawals are free of federal taxes (and more than 30 states offer full or partial tax benefits, too.)
But prior to investing in a 529 Plan, investors should consider whether theirs or their designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Tax treatment at the state level may vary. So please consult with your tax adviser before investing.
Additionally, a Coverdell Education Savings Account (ESA) offers tax advantages that are similar to those of the 529 plan, but limits contributions to $2,000 per year combined from all sources. If you’re contributing less than $2,000 a year, they can be simple to set up and manage. Keep in mind that there are phased-income restrictions when setting up the account and no inflation adjustments. In addition, the funds need to be used by age 30.
PAY DOWN DEBT
Sept. 23 is the first day of fall. Write it down in your calendar: Make it your personal goal to pay down any high-interest credit card debt before the leaves stop falling in Minnesota (usually late October in Central Minnesota and the Twin Cities, in case you’re wondering). Interest rates have been creeping up, and with inflation on the march, your purchasing power may be eroding if you are paying debt service on high-interest loans. Remember that paying off a credit card that charges 15% is like getting a 15% return in the stock market (not too many investments are generating those kinds of returns right now).
KEEP A CLOSE EYE ON EXPENSES
Everyone is tightening their wallets these days, as prices for groceries and gas to fill your car reach nosebleed levels. If your expenses are all of a sudden higher than you budgeted for the year, you need to track your spending to see where it all goes. If you are able to keep your expenses flat but increase your income even at a modestly steady rate over time, that is a surefire way to build a comfortable nest egg. Look at ways to cut costs before inflation starts affecting your lifestyle, and consult with a financial adviser on ways to establish and maintain a budget.
This article was originally published in the Pioneer Press.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including possible loss of principal.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
