Can you believe we are nearing the mid-point of 2005? From a broad financial standpoint, the stock market is down slightly since the beginning of the year, short-term interest rates appear to be headed upwards, the war in Iraq continues to drag on and gasoline prices are steadily increasing. How do these changes affect your financial plan?
On a personal level, what has changed in your family’s life? Have any marriages, divorces, births, health changes, pay raises, layoffs, retirements or graduations taken place? How have family changes affected your financial plan? Right now is a great time to measure your progress toward the achievement of your financial goals and to make mid-year corrections.
Is your family on track to achieve its key financial goals? Short-term goals can be achieved in less than one year. They might include the establishment of an emergency fund, a vacation or minor home improvements. Intermediate goals of one to five years might include paying off credit card debt, saving for a down payment on a home or making major home improvements. Long-term objectives of more than five years might include college funding, retirement or a vacation home purchase. In general, how are you doing? If you have not written out your key financial goals, take the time to do so now.
If you want to achieve your financial goals, it is imperative to manage the major source of your potential wealth–your cash. Are there ways that you can take advantage of today’s low interest rates by possibly refinancing your mortgage or switching to a lower rate credit card? Have you maximized your income potential? Would overtime or a second job for a few months allow you to remove the albatross of bad debt from your life?
Consider alternative ways to reduce expenses, such as buying clothes during seasonal sale periods, cooking meals at home or using public transportation. If you have not set up a monthly cash-flow statement, use your last three months’ income and expenses to establish a baseline and then track it monthly.
The new tax law reduced individual tax rates, increased the child tax credit, provided dividend and long-term capital gains relief and made several other changes. If you used a tax advisor in the past, consider meeting with your advisor to access your tax situation. Start by reviewing your 2004 tax returns, your most recent pay stubs and your investment account statements. Make a copy of your last Form 1040 and pencil in estimates of your 2005 income, estimated itemized deductions, withholding, credits and final tax due or overpayment. Are there ways to legitimately increase your deductions or defer income into next year, and ultimately reduce you taxes for 2005?
Insurance and estate planning
Review your life, disability, health, long term care, and property and casualty coverage with your insurance agent. Is your coverage adequate and cost effective? Additionally, every adult should have a basic estate plan that begins with a will, durable power-of-attorney and a health care directive. Are these documents current and stored in a secure place? Also, make sure that the named beneficiaries on your pension plan, insurance policies, IRAs and similar contracts are current.
Now is a good time to ensure that 2005 will be a good year in your journey toward potentially achieving financial goals. Take time during July to conduct a mid-year financial review.
(Michael Shinn is a Registered Representative of the Financial Network Investment Corporation. Visit www.shinnfinancial.com for more information. Questions and comments may be sent to [email protected] Neither Michael Shinn nor Financial Network provides tax advice. Please consult a tax professional before implementing any strategy.)