Your 7-Step Midyear Money Checkup
by Dayana Yochim May 19th 2012 5:00AM
With six months of earning, saving, and spending under your belt, you've got plenty of data to project how 2012 is going to play out. So let's lift the hood on your finances and give everything a good once over.
Your 7-Step Financial Tune-up Agenda
The goal of this six-month checkup is to identify potential trouble spots before they become big money gushers. Use this checklist to methodically review each area of your personal financial empire. Beneath each step, note any lingering "to-dos" (e.g., "contribute to Roth IRA"). If you cannot complete those items during your financial physical, set a personal deadline for doing so. As an added incentive, come up with a reward you'll indulge yourself with when you've finished.
Step 1: Update your personal balance sheet (what you own and what you owe).
This will take about 15 to 20 minutes -- less if you already use money tracking software or a site like Mint.com. Simply record the balances of the following items: checking/savings accounts; brokerage accounts; retirement accounts; home equity; short-term debt (credit cards, student/auto loans); and long-term debt (mortgage).
Note what direction your money's going (up, down, haywire). If this is your first review, you now have a baseline for your next checkup.
Step 2: Give your W-4 a once-over.
If you earn a steady paycheck (meaning one not dependent on bonuses or fluctuating earnings month-to-month), this is your chance to stop overpaying Uncle Sam. If you got a tax refund last year of more than $1,000 and have made no adjustments to your W-4, and if you don't anticipate any major life changes, adjust the number of withholding allowances.
Head to IRS.gov's withholding calculator. (You'll need your most recent pay stub and last year's income tax return.) To avoid underpayment penalties, shoot for the number of allowances that satisfies 100% to 110% of the taxes you owed for the prior year.
Step 3: Make a progress report on your savings goals.
If you have formal saving and spending goals in place, map out the progress you've made on them in the past six months, and make adjustments if you need to. If you don't have goals already, take 15 minutes to figure out your short-, mid-, and long-term targets. (See this "How to Set Up a Spending Plan" guide for help.)
Step 4: Review your employer-provided benefits.
Check your contribution levels and the balances on your 401(k), 403(b) or any similar plan, as well as on any profit sharing. At the rate you're going, will you max out your contributions before the first strains of "Auld Lang Syne" on Dec. 31?
The 2012 contribution limit for most folks is $17,000, not including any matching contributions your boss kicks in. If you're 50 or older, your contribution limit is $22,500.
If you signed up for a flexible spending account at work for medical and/or dependent care, gather those bills and fill out the reimbursement forms. Then, project the next six months of spending with what remains so that you're sure to drain the account down to $0, since some plans don't allow carry-forwards on unspent money.
Step 5: Max-out your self-directed investments.
It's also time to think about an IRA. If you haven't devoted any money to one yet, start automating this pay-yourself-big-time-in-the-future account and put it out of your mind. You have until the tax due date next April to fund it for 2012. The maximum contribution limit for this year is $5,000 ($6,000 if you're 50 or older). Even if you can't squirrel away that much cash for the next six months, sock away something. Trust me; you'll thank me in retirement.
Also, evaluate your portfolio's holdings (a great excuse to set up online tracking if you haven't already) and reassess each position using what investing luminary Peter Lynch calls the "two-minute drill" -- that is, listing the reasons you bought the shares, and noting any current red flags on the fundamentals.
Step 6: Double-check the locks on your identity.
Make sure nothing fishy is going on in your credit report. You're entitled to one free credit report each year from each of three major credit reporting bureaus. Go to annualcreditreport.com to get your freebies. (Follow these tips for keeping the bad guys out of your business.) And if you've got major borrowing plans on the horizon, don't wait until the last minute to clean up your credit profile. Give yourself at least three to six months leeway. (Here's a 60-second guide to help you boost your credit score.)
Step 7: Make the next six months matter.
There's a lot you can do right now to improve your future. Put each action step on a calendar (in pen!) and vow to complete each item in the next month. Six months from now you'll be pleasantly surprised at the progress you've made.
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