Cents & Sensibility – Review financial goals


Beth Peabody

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

As we approach the middle of the year, it is time to revisit the financial objectives set in January. The action item for July is to assess how you are doing with your budget. Did you meet your monthly goals based on the previous allocation suggestions: 50% of your monthly net income to fixed amounts such as housing and living expenses, 30% to entertainment and travel expenses, and the 20 % remaining to three buckets of savings?

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

This is also a good time to review the allocations to your three savings tranches. Is the first emergency savings basket sufficient with a balance of 3-6 months of monthly living expenses? If you had to use some of that money recently, try to replenish it.

The second tranche of savings should reflect a medium-term goal like buying a new car, saving for college, or paying off debt. Make sure you are on track to achieve these goals.

The final savings tranche is long-term oriented and generally targets retirement. Be sure to contribute as much as possible to retirement, especially if your employer offers you a match. If you received a raise this year, try increasing your contribution percentage each pay period.

A mid-year review of investment allocations for each of the three compartments described above is good discipline. Despite the angst surrounding financial market volatility this year, the investment strategy for each tranche is not expected to change due to this performance.

As a reminder, emergency savings should stay in a savings account or money market fund. The savings tranche for medium-term goals can tolerate a little more risk, which can include investing some in stocks and bonds, but only if the time horizon is longer than three years.

The long-term bucket is exactly that – long-term. Don’t panic because of recent events. However, reviewing the current asset allocation against your long-term objective is a good mid-year project. If recent investment performance has you derailed, now is the time to rebalance your original focus.

Ignoring the impact of inflation on your budget and declining wealth 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 have caused you stress because you were gambling with your savings, use this as a teaching moment to avoid making such bets in the future. If you’re an investor, don’t stress or lose faith in your plan. Investors know that market volatility is common in the short term and 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 can be viewed at https://therecordnewspaper.org/editorials-commentary/cents-sensibility/


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