The bills of summer vacation are now on your statement, school’s about to start and the holidays are four short months away. August may feel like wasted “dog days,” but it’s the ideal time for an annual money checkup. Seize on this end-of-summer lull to improve your financial prospects for the seasons to come.
Get your budget back on track
If you’ve blown your budget with summer travel and activities, you’re not alone. A recent NerdWallet Harris Poll found more than 80% of parents planned to travel this summer and expected to charge about $1,000 on their credit card. If you’re making only minimum credit card payments, vacation expenses will linger long after your tan fades. NerdWallet’s analysis shows that it would take over 5½ years to pay the average $1,019 in charges plus $452 in accrued interest for a credit card with a 15% interest rate.
Don’t let the bills of this summer drag into the year 2024.”
Don’t let the bills of this summer drag into the year 2024. Build (or rebuild) your budget with an eye on reducing monthly expenses so you can put more cash toward reducing high-interest credit card debt. While you’re reviewing your budget, check that you’re on track with savings for holiday spending and other additional expenses you foresee.
» Find more cash: Here are 40 ways to lower your bills
Read your credit report
You’re entitled to at least one free copy of your credit report annually from each of the “big three” credit reporting agencies: TransUnion, Experian and Equifax. Review them for credit score-lowering errors, which could cause problems when you want a loan or a new credit card. A 2012 report by the Federal Trade Commission found that 26% of those surveyed who checked their reports found potentially material errors on at least one. Make August your go-to month to detect and correct problems, like accounts you didn’t authorize or other incorrect information. Once you’ve fixed errors, regularly monitor your score. (NerdWallet offers free credit score and report info.)
» Learn how to get your credit reports and fix problems
Review your tax situation
Your last holistic look at your finances was likely during tax season, and with four months left on the calendar it's time to see how you’re set for the next one. That’s especially important this year: New tax rules may make your 2018 return different from previous ones. A federal income tax calculator can estimate your expected taxes for 2018. If it signals you may owe a lot, you have time to prepare. Adjust your withholding by filing a new W-4 with your employer and/or start saving. Going forward, midyear is a good time to check on any problems that bedeviled you the previous tax season. Fine-tuning your withholding is key: You want to withhold enough to cover your bill, but withholding too much means you’re essentially lending the government money from each paycheck.
» Peek at your coming tax bill with a federal income tax calculator
Look at your retirement savings
When was the last time you really looked at your 401(k) or other employer-sponsored retirement savings plan? If your employer matches your contributions up to a certain level, make sure you’re putting in enough to get the full match — otherwise you’re losing out on free money. Making the match? Good — keep inching up contributions over time. You can invest up to $18,500 of your pretax salary ($24,500 if you are 50 or older) each year. Additional contributions not only increase your retirement savings, but also reduce your income tax bill.
Next, look at your traditional or Roth individual retirement account. The government also sets annual contribution limits for these tax-advantaged accounts at $5,500 a year ($6,500 if you are 50 or older), subject to income limits. Check that you’re not over-contributing, which can cause problems next tax season, or contributing too little to get the full tax benefit.
Make a broader financial plan
Beyond budgeting, the basics of a financial plan include setting money goals, building your emergency fund and tackling high-interest debt. A budget helps you weather the storm of unexpected expenses (or a “let’s live a little” bout of vacation overspending). The process of creating and maintaining a money plan goes beyond that — it helps you steer your financial ship toward goals like homeownership and a healthy retirement.
Don’t know where to start? Maybe it’s time to get professional help. Financial advice comes in a variety of forms and price levels, starting with low-cost robo-advisors that build and manage an investment portfolio for you. If you want more comprehensive financial planning, seek out fee-only financial advisors — they are paid only by clients and don't take commissions for selling products. Some charge by the hour or will do a plan for a flat fee.
» Learn how to choose the right financial advisor for you