Midyear review a good time to check finances
Americans are feeling better about their finances, with jobs plentiful and generally rising prices for stocks, real estate and other mainstream assets. But there are always ways to make improvements. Here are some tips for getting your finances in better shape over the second half of the year.
❚ Assess your situation: Most Americans have noticed a rise in take-home pay thanks to the lower income-tax rates ushered in by reform legislation enacted in late 2017. Still, you want to make sure you are having enough taxes taken out of your paycheck to avoid interest charges and possible penalties. One way to do that is to input your numbers into the new tax-withholding calculator at irs.gov.
Tax reform will affect individuals in many other ways, including a big increase in the standard deduction to
$12,000 for singles and $24,000 for married couples (roughly doubling both amounts compared with 2017). If your potential itemized deductions aren’t above those levels, it makes sense to take the standard deduction. But if you’re close to the crossover point, it might pay to incur some expenses this year that could be itemized.
To make that determination, you should see where you stand in terms of mortgage interest, property taxes, charitable contributions, health expenditures and other possible deductions.
❚ Analyze your investment position: Morningstar just released a study showing that investors are behaving better, in that they’re not making the types of bad market-timing decisions that have plagued some in the past.
The investment research company measured the cash flowing in and out of mutual funds as a way to evaluate the buying and selling decisions made by individuals. On balance, investors still underperform their funds by selling at market lows and buying too much when prices are relatively high. But this per- formance gap has narrowed to its lowest point since Morningstar first began studying it in 2005.
But there still are ways to improve performance. One way is to verify that you’re paying modest expenses.
On average, actively managed stock funds charge 0.78 percent in annual expenses and bond funds charge 0.55 percent, according to the Investment Company Institute. Average expenses on index and exchange-traded funds tend to run even lower. Use these levels as guidelines to help determine whether your funds are charging too much.
Also, make sure you have a suitable mix of investments, especially as it concerns the proportion of stocks and stock funds in your portfolio. One rule of thumb is to hold a percentage equal to
100 or 110 minus your age in stocks. So, if you’re 40, you might stake 60 to 70 percent in equities.
❚ Check a credit report or two: Everyone can obtain one free credit report annually from each of the three major credit bureaus: Experian, Equifax and TransUnion. To receive one at no cost, order through annualcreditreport.com
(1-877-322-8228). You’re entitled to one free report every 12 months from each bureau, so you could space them out.
Look for inaccurate information in your reports, then ask each credit bureau to correct it.
❚ Change passwords, cut clutter: Many of us have accumulated gobs of online financial accounts – for investing, credit cards, banking and more. Midyear is as good a time as any to change your passwords, close unused accounts and get other housekeeping chores out of the way.
Devise an effective filing system for what you want to keep, and shred unneeded documents that contain sensitive personal information. Consider opting for digital access rather than having paper statements mailed to you.
While you’re at it, review your beneficiaries on 401(k) accounts, individual retirement accounts, life insurance policies and other documents. Make sure these are the people whom you want to receive your assets should you die.