A Mid-Year Cash Flow Review
As you turn the calendar to July, are you wondering, how are we halfway through the year already? If so, you are not alone. But here we are, and with the cost of goods on the rise, it might be time for a mid-year budget check-in. So review the income and expense items below to ensure your financial plan stays on track.
W2 Employees: The Bureau of Labor Statistics reported that private-sector workers saw average wages and salaries increase 5.0% for the 12 months ending in March 2022, compared to 4.7% for federal employees and 3.2% for state and local government workers. However, if your income is not keeping up with inflation, is it time to look for a new job? According to a recent Wall Street Journal article, "nearly half [of job-switchers] received a raise of 11% or more." With companies clamoring to fill jobs, weigh the benefits of staying loyal to your current employer with your income needs.
Self Employed: While most W-2 workers can quickly review a pay stub to determine periodic net pay, self-employed workers may have variable income. If you are a small business owner or 1099 employee, track your expenses and projected earnings closely to determine estimated revenue. Don't be afraid to raise prices as your costs of goods and services rise.
Retirees: Those who rely on Social Security for income saw a 5.9% cost-of-living adjustment (COLA) for 2022, and there is speculation that Social Security beneficiaries could receive an even bigger COLA bump in 2023, but the Social Security Administration will not make that announcement until later in the year. If you are taking distributions from your retirement portfolio, you may need to increase withdrawals, but be sure to consult with your investment professional to discuss any cash flow changes.
It's hard not to notice the gas prices rising and higher grocery bills, but take an inventory of your regular monthly costs and you may be surprised to find that they have arisen without your notice.
Fixed-cost utilities such as cable, phone, internet, and garbage service may be under contract, but don't be shocked if those costs go up at the annual renewal. Your Netflix and other media subscriptions, memberships to clubs, child and pet care, and professional dues may all increase if they have not already. In addition, anyone who purchased a home three or five years ago with an ARM mortgage, expecting to move or find another house, may want to lock in a fixed rate before interest rates rise again.
Rising prices for variable-cost items like utilities (e.g., water, electricity, oil/gas), food, household supplies, transportation, property maintenance, and clothing might be even harder to notice unless tracked regularly.
If your budget is tight, consider each expense in your spending plan and determine whether it qualifies as a need (mandatory/unavoidable) or a want (subject to choice/preference). While it is harder to reduce mandatory or non-discretionary expenses, most people have options with discretionary costs. However, the distinction between discretionary and non-discretionary is subjective. For instance, one may feel that three golf memberships are essential, while another might feel it's time to surrender an infrequently used country club membership.
If you need to assess your spending patterns and modify habits, consider what lifestyle changes or payment terms you can make to adjust your spending. Clients of Hurlow Wealth Management Group have access to the CFO Center, their Personal Financial Website. By accessing it and linking their spending accounts, they can easily see their spending history to track and manage a budget automatically.
If you are not yet a client, feel free to schedule a complimentary consultation with one of our professional investment advisors. For two decades, the Hurlow Wealth Management Group has helped clients achieve their financial goals by creating clarity around priorities, feeling confident to make decisions, and ultimately achieving comfort. Schedule a time to have a conversation that can give you confidence that your entire financial plan is headed in the right direction.