Mid-Year Financial Tweaks and Tasks

It’s halftime for your 2023 finances and a perfect time to review where you stand, make mid-year adjustments, and complete recommended financial planning action steps.

Below are ten mid-year financial tweaks and tasks:

Tax-Deferred Savings Tweak- Perhaps you will get a raise on July 1. Consider completing the paperwork needed to save more money from July to December in your employer’s tax-deferred retirement savings plan. Even 1% more of pay in savings adds up over time.

Health Savings Account (HSA) Tweak- By mid-year, you know what you already spent for health care services through June. This information can help inform decisions about how much more to save up to the 2023 limits of $3,850 (self-only) and $7,750 (family coverage).

Flexible Spending Account (FSA) Tweak- Like HSAs, you know your health care spending so far. Use this information to adjust payroll deductions for a health care FSA (up or down). The 2023 maximum pre-tax contribution is $3,050. Ditto for child care FSA contributions.

Tax Withholding Tweak- The IRS Tax Withholding Estimator can determine if withholding is on track based on estimates of remaining 2023 income. Also, apply the IRS safe harbor rules to 2022 income and a “best estimate” of 2023 income to avoid an under-withholding penalty.

Savings Account Refresh- While “brick and mortar” banks pay less than 0.05% (i.e., half of 1%) on savings and money market accounts, online banks now pay about 3.75% to 4.5%. Search for banks that offer attractive rates and FDIC insurance and consider moving your money. Another cash equivalent asset to consider is FDIC-insured certificates of deposit (CDs) sold by online banks and brokerage firms.

Budget Refresh- During the first six months of 2023, inflation increased many household expenses including auto and homeowner’s insurance premiums, utilities, rent, child care, and food eaten at and away from home. Rework the numbers in previous budgets to better reflect current costs.

Net Worth Calculation- If you haven’t tallied the value of your assets and debts in a while to calculate net worth (assets - debts), now is a good time. Why? You have six months left in 2023 to make positive changes; e.g., saving more and accelerating debt repayment using PowerPay.

Financial Self-Assessments- Rutgers Cooperative Extension has six online financial self-assessment tools to help users identify strengths and weaknesses of their personal finances. Quiz results can identify opportunities for financial self-improvement during the remainder of 2023 by taking action on quiz items with a “never” or “seldom” response.

Investment Analysis- Now is the time to review investment performance during the first half of 2023. Why? To inform investment decisions going forward and to identify poorly performing securities that might be good candidates for potential tax-loss harvesting at year end.

Tax Bracket Analysis- By mid-year, it is easier to make more accurate projections of annual income. Consider doing a proforma 2023 tax return. This information can inform decisions made during July to December to avoid moving up to a higher tax bracket or triggering the net investment income tax (NIIT) and, for older adults, higher IRMAA Medicare premiums.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Keep Track of Your Beneficiaries

Who is going to get what you someday leave behind in life insurance policies and/or tax-deferred retirement accounts? Beneficiary designations are important estate-planning tools and should not be overlooked to make sure your hard-earned money gets passed down to those you select to receive it. Below are nine beneficiary “need to knows”:

Beneficiary Types- Beneficiaries inherit assets when people die. Typically, they are people or organizations that people care deeply about (e.g., spouse, children, charitable organizations).

Beneficiary Use- Beneficiary designations are required for life insurance policies, individual retirement accounts (IRAs), employer retirement savings plans (e.g., TSP, 401(k)s, and 403(b)s), and annuities so that proceeds can be transferred to beneficiaries free of probate.

Contingent Beneficiaries- It is wise to name contingent beneficiaries in case beneficiaries pre-decease you or wish to disclaim an asset, typically for tax planning purposes. If there is no living named beneficiary or contingent beneficiary(ies), assets have no place to go but to the owner’s estate, which means going through probate and expensive estate settlement expenses.

Minors as Beneficiaries- In many families, the beneficiary is a spouse. Absent a spouse, many people name their children. However, property inherited by minors can be tricky. A guardian must be appointed by the court to manage assets of minor children until they reach legal age.

Beneficiary Changes- Beneficiary designations can be changed as needed. With employer-sponsored retirement plans, workers should contact their plan administrator or HR department; life insurance policy owners, their insurer; and IRAs and annuities, the plan custodian.

Reasons for Change- It is not unusual for people to change beneficiaries several times throughout their lifetime. For example, they might name parents as beneficiaries as a young adult and switch to naming a spouse or partner later. If that relationship subsequently ends, they may need to name a new beneficiary again.

Keeping Track- It is easy for busy people to lose track of who they named as beneficiaries. Reviewing documents is not high on their priority list. The downloadable form, Beneficiary and Personal Representative Designations, is useful to list beneficiary designations in one place.

Sharing Information- Let trusted people know you’ve compiled your beneficiary designations in one place and share a copy with them. After all, it will do nobody any good if you compile this information and nobody knows that it exists. Not having beneficiary designation data readily available can result in needless expenses and/or time delays in the distribution of assets.

Factors to Consider- When selecting beneficiaries, consider their resources and characteristics by answering the following three questions: What are their financial needs? How old and self-sufficient are they? and Are they capable and mature enough to manage money?

Appropriate and up-to-date beneficiary designations are an important part of financial planning. Well-designed estate plans can reduce administrative expenses and prevent family squabbles after someone is gone. When people make careful designations of beneficiaries, they can, not only can keep the peace, but make people and/or charities very happy for many years to come.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Coping With the Aftermath of a Disaster

Since we are in “high season” for natural disasters, it is a “teachable moment” to review some things to consider if you are the victim of nature’s wrath, an explosion, or any other damage to your property and are coping with financial losses and bills for temporary living expenses:

Call Your Insurance Agent- Ask your property and casualty agent about “fine print” in your homeowners policy. All policies have very specific language about types of losses that are covered (e.g., hurricane damage) and those that are not (e.g., flood damage and business use of a home). Of course, policy deductibles (e.g., $500) apply before any damage claims are paid.

 

Learn the Claims Process- Write down the steps to file a claim. Note that benefits paid will never exceed the maximum coverage provided by a policy for a dwelling, other structures (e.g., a shed), personal property, and additional living expenses.

 

Document Damage- Take photos, before cleaning up, to document losses. Separate damaged and undamaged property, but don’t destroy damaged items until a claims adjuster inspects them. If you have material you would like to remove immediately, because it could be a health hazard, ask your insurance agent for instruction.

 

Remain Available- Leave a phone number (e.g., friend or family member’s house or cell phone) where you can be reached by an adjuster or insurance agent if your home is uninhabitable or you are evacuated to another location.

 

Protect Your Property- Avoid further damage by making temporary repairs (e.g., putting a tarp over a damaged roof or plastic over blown out windows). Save receipts for reimbursement. Even if insurance doesn’t fully reimburse you, you may qualify for an itemized deduction for federal income taxes (Schedule A) if losses are in a federally declared disaster area,

 

Itemize Your Losses- Make a list of damaged articles and provide any other information that the adjuster requests to process your claim. Ideally, you have a home inventory of personal property and/or photos. Keep copies of information provided to the insurance company.

 

Inventory Your Possessions- If you don’t have a home inventory, make one now to provide evidence of property losses, if necessary. Store it away from home in a bank safe deposit box or cloud storage. No special forms are needed. Simply walk from room to room, listing all major items (e.g., appliances, furniture) with serial numbers and/or other identifying information.

 

Reach Out for Help- Review the settlement process outlined in your insurance policy. If you’re dissatisfied with a proposed settlement offer, negotiate for a higher amount, submit the dispute for arbitration, and/or consider hiring an attorney to represent you. If post-disaster theft should occur (unfortunately, this sometimes happens), report it to local police.

 

Prepare to “Grab and Go”-  Assemble a family “emergency box” that can be grabbed at a moment’s notice if you get “the knock at the door” and are given just a minute to clear out. A list of items to include can be found in this publication from Texas A&M Agrilife Extension.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Troubling Statistics About Online Gambling

Earlier this year, I made a conference presentation about current financial trends and included information about online gambling. I also attended a webinar about online gambling presented by Next Gen Personal Finance, a youth financial education advocacy and training organization.

Below is some information about online gambling, financial education activities related to gambling, and learning lessons from the one and only time that I ever placed a bet online.

 

Alarming Statistics- Between 60% and 80% of high school students have gambled for money during the past year, according to the National Council on Problem Gambling. This is despite the fact that the legal age for gambling ranges from 18 to 21, depending on state law. An estimated 4% to 6% of these students have a gambling addiction problem.

 

Gaming to Gambling- The largest share of young gamblers are teenage boys, who often jump a blurring line from childhood videogaming devices to gambling. Many videogames feature items that mimic casino games or they sell virtual items (e.g., swords and clothing) that can be purchased with an adult’s credit card, thereby establishing a credit to gaming connection.

 

Tech Influences- Back in the day, gamblers had to go to a casino or off-track betting parlor to place their bets. Fast forward to today and technology advances, coupled with state legislation, are fueling a surge in problem gambling. In late 2022, 26 states had legalized mobile sports betting, making wagering as easy as a few keystrokes on a smartphone or tablet.

 

Gambler Characteristics- Gambling experts note that many gamblers have a distorted view that they are “in control” of a sporting event or an online game and can predict the outcome. They greatly underestimate the amount of money that online betting transactions are costing and may gamble to cope with mental health issues such as depression and anxiety.

 

Financial Education Implications- Gambling needs to be acknowledged as an “expense,” without judgement, by financial counselors. For example, calculating the percent of household income going to gambling. Teaching methods in high schools can include watching and discussing the Netflix Money, Explained episode on gambling, a reformed gambler guest speaker, flipping coins to discuss the odds of winning, and discussing sports betting ads.

 

Personal Experience- Intrigued by this topic, I decided to try a personal online gambling experiment and placed my first online bet ever on the 2023 Kentucky Derby. My husband and I each bet $10 and, upon checkout, the platform charged a $5 service fee or 25% of the amount of our bets! My husband picked one horse, the favorite, and I “diversified” my $10 among three horses with $2, $3, and $5 bets. Neither of us won anything. The platform took a while to navigate and someone could easily make mistakes with erroneous keystrokes. To add insult to injury, my credit card charged a $10 cash advance fee and $1 interest on the fee, a shock to this convenience user who never pays interest. Never again! Bottom line: Our $20 in bets cost $16!

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.