Power of Planning

Midyear Money Checkup: Tips for Getting Fiscally Fit

by Michele Lerner  Jul 9th 2013 5:00AM

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Summertime, while naturally a more laid-back season, should also be your moment to shine a little sunlight on your finances. Just as your annual exam at the doctor's office includes a variety of tests to determine your level of physical fitness, your midyear money checkup should do the same for your fiscal health. Here are five essential midyear money tests.

1. Evaluate your cash flow. You can't get your body in shape without paying attention to calories in and out; ditto for your budget. You need to measure your cash flow by doing an income and outgo money assessment at least twice a year.

"A cash flow analysis can help identify problem areas to determine if you're making wise spending decisions based on your financial and lifestyle goals," says Renee Hanson, a private wealth adviser with Ameriprise in Phoenix. "Discretionary categories such as clothing and dining out are frequent culprits of hogging cash flow in small increments. Ask yourself if you found high satisfaction for your purchases, considering what you may have had to sacrifice." Depending on the answer, you may want to put yourself on a spending diet for those categories. Set aside a monthly amount for that type of expense, and when it's gone, it's gone.

For more help reining in your expenditures, follow these 3 Simple Steps to Budgeting Bliss.

2. Review your credit profile. If you haven't already done it, request your free annual credit report at AnnualCreditReport.com; examine it carefully for errors and negative factors. You can order one from each major credit reporting agency at once or spread them out over the year.

Next, check out how much you're paying in interest on your debt. Hanson suggests setting up automatic payments or getting email reminders when bills are due so you don't get dinged by late fees or higher interest-rate penalties.

"Get real with your debt," says Thomas Nitzsche, media relations coordinator for ClearPoint Credit Counseling Solutions in St. Louis. "It might be ugly, but list all your debts, payments, and interest rates." If you're just making the minimum payments, use an online calculator (find one at your bank's website or BankRate.com) to get a clear picture of how long it's going to take you to pay the balances in full.

If you can't increase your payments, you can contact your creditor and request a lower interest rate, or, if you have a financial hardship, you may qualify for a special repayment plan. For more help getting debt under control, here are four ways you can Declare Your Independence from Credit Card Debt.

3. Rebalance your portfolio. Just as your doctor checks your blood pressure and heart rate to see how your body handles physical stress, you need check your portfolio to see how it handles market stress. The summer months in particular, when trading tends to be be lighter, can produce greater volatility. Rebalancing your portfolio will go a long way toward smoothing out the market's ups and downs.

"Rebalancing is a process that allows you to realign your assets to your strategic allocation, to a portfolio mix that aligns with your financial values, goals, and risk tolerance, with an eye toward economic conditions," says Hanson. "The value of regular rebalancing is to avoid excess risk in the portfolio that may expose you to undue volatility."

4. Revisit your savings strategies. Staying healthy depends on adopting good habits and having the discipline to stick with them; the same goes for saving money. Now is a good time to assess your savings regimen, while there's still six months of the year left to make adjustments.

For starters, examine the tax implications of your saving strategies. For example, could you lower your tax bracket by putting more in your 401(k) or reconsidering a Roth IRA for your retirement savings? Are you contributing enough to your company plan to get the maximum match your employer offers?

"Your midyear evaluation is to ask yourself these questions and make changes, if necessary, before the end of the year, when it is often too late to implement a tax savings strategy," Hanson says.

5. Do an insurance audit. Finally, midyear is a good time to do an insurance inventory to see that you're properly covered and to find out if you can save money on your premiums. Rates can creep up over the years, so you may find that you can get the same or better coverage for less with another company.

Don't be afraid to switch mid-policy, either. You'll be refunded a prorated amount, Nitzsche says. "And if you save on the premium, you might even be able to afford another coverage you have wanted, or a decreased deductible."

Use this insurance review cheat sheet to do an inventory of your home, auto and life insurance policies and make sure you're getting the right coverage at the best price.

Then, before you head back out into the summer sun, set yourself an alert to revisit your financial plan again in six months for a year-end checkup.

Michele Lerner is a contributing writer for The Motley Fool.