Cents & Sensibility —
Review financial goals

Beth Peabody

Last month’s column discussed impacts of the significant increase in inflation which included interest rates rising quickly. Because consumers are feeling the negative impact with higher prices for goods and services and higher interest rates on variable debt, readers were encouraged to increase confidence in their financial future by taking specific actions outlined in the column.

As mid-year arrives, now is a good time to review financial goals set in January. The action item for July is to assess how you are doing with your budget. Have you achieved your monthly goals based upon earlier suggestions of allocating: 50% of your monthly net income to fixed amounts such as housing and living expenses, 30% to entertainment and travel expenses and the remaining 20% to three buckets of savings?

If not, consider taking steps to get back on track. If recent price increases for food, travel, entertainment and gasoline have impacted your budget, now is a good time to reconsider goals for the remainder of 2022.

Now is also a good time to review allocations to your three savings buckets. Is the first bucket of emergency savings adequate with a balance of 3-6 months of monthly living expenses? If you have had to use some of this money recently, try to replenish.

The second savings bucket should reflect a mid-term goal like the purchase of a new car, college savings or debt repayment. Make sure that you are on track to meet these goals.

The final savings bucket is long-term oriented and is usually targeted toward retirement. Make sure you are contributing as much as possible to retirement, especially if your employer provides a match. If you received a raise this year, try to increase the percentage you are contributing with each pay period.

A mid-year review of the investment allocations for each of the three buckets outlined above is a good discipline. Despite the angst surrounding the volatility of financial markets this year, the investment strategy for each bucket should not change because of this performance.

As a reminder, emergency savings should remain in a savings account or money market fund. The savings bucket for mid-term goals can tolerate a bit more risk, which might include placing a portion in stocks and bonds, but only if the time horizon is greater than three years.

The long-term bucket is exactly that – long-term. Do not panic due to recent events. However, reviewing the asset allocation currently versus your long-term goal is a good project to conduct mid-year. If recent investment performance has you off track, now is a good time to rebalance back to your original target.

Ignoring the impact of inflation on your budget and the decline in your assets is not a good strategy. Instead, use these events as an opportunity to review your plans. Take a deep breath and review your goals and investments. Do not panic.

If recent events caused stress because you were gambling with your savings, use this as a teaching moment to avoid making such bets in the future. If you are an investor, do not stress and lose confidence in your plan. Investors know that market volatility is common in the short-term and that the best strategy is to focus on the long-term to ensure financial security.

Beth Stegner Peabody is CEO of Stegner Investment Associates, Inc., and a 1979 graduate of Sacred Heart Academy.

Previous Cents & Sensibility columns may be viewed at https://therecordnewspaper.org/editorials-commentary/cents-sensibility/

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Review financial goals”