Time for mid-term exams
By Greg McBride, CFA • Bankrate.com

Is it June already? Since we're rapidly approaching the midpoint of the year, it is an appropriate time for a midyear review of the financial resolutions made at the beginning of the year. The idea is to revisit the progress -- or lack thereof -- since the beginning of the year with enough time left to make any necessary adjustments.

Start by taking a look at your debt picture to see how it has changed and how you have progressed since Jan. 1. Consumer debt loads have continued to increase this year, according to the most recent figures from the Federal Reserve. Perhaps that is representative of your situation, or perhaps you have stuck to your resolution of working to get out of debt. Begin by comparing your total debt load now versus the beginning of the year.

The low interest rates that have prevailed through the first half of 2004 have facilitated debt consolidation and accelerated repayment. Many borrowers -- and homeowners in particular -- have restructured their debt by consolidating high interest rate credit card debt or personal loans at much lower rates using the equity in their homes. But consolidating without actually paying down the debt constitutes little progress. With interest rates poised to rise through the second half of 2004, and the likelihood of continued increases through 2005, the process of debt repayment will subsequently require more effort.

After debt, it is time to look at what may serve as your buffer from incurring further debt in the future -- an emergency savings account. Having a liquid savings reserve affords tremendous flexibility in the event of unplanned expenses or an unexpected loss of income. How much has your savings grown -- or shrunk -- since the beginning of the year, and why? Evaluate how consistent you have been in accumulating savings, or draining what surplus you had.

Do what you can to set aside money from each pay, plus any windfalls or savings from trimming expenses, to amass savings equal to at least three months of expenses. A reserve equal to six months of expenses is ideal, but first things first. Once you see some progress in accumulating savings, it may become easier to keep the momentum going.

Fortunately, the returns on money market accounts and other savings instruments will begin rebounding as the Federal Reserve boosts interest rates. Unfortunately, inflation is also on the rise. To earn the most competitive returns while keeping pace with inflation and without taking any risk, see Bankrate.com's high-yielding bank money market accounts.

Moving further down the checklist, it is time to look at retirement savings. As we approach the halfway point of 2004, have you made your annual IRA contribution or are you in the process of doing so? Many mutual funds will permit you to set up monthly or quarterly contributions to your IRA, enabling you to contribute in more manageable amounts rather than one lump sum. If the recent market turmoil finds you considering more conservative investments, check out Bankrate.com's IRA channel for the highest-yielding IRA CD and money market accounts.

It is also a good time to review your contributions to a 401(k) or other employer-sponsored retirement plan. According to a recent Gallup survey, 25 percent of those eligible to contribute to a plan do not. Of those that do contribute, very few are contributing the maximum. This suggests that the majority of people have plenty of room to boost contributions, and doing so now still gives you six months of contributions at the higher level.

Of course, boosting contributions to a 401(k) also reduces your taxable income. On that note, it is prudent to see if your tax withholding status needs updating for any changes since the beginning of the year.

Changes to tax withholding are commonly advised in instances such as the birth of a child, marriage or divorce, purchase of a home, or significant change in household income. However, tax cuts may also mandate an update to your withholding status. If you received an oversized tax refund this spring, let that be your cue to adjust the amount withheld from each paycheck. Reducing the amount withheld now will give you six months of higher net pay and also limits the size of the interest-free loan you're giving Uncle Sam.

There is no sense in procrastinating on other financial tasks either. Have you neglected to prepare a will? According to Bankrate.com's Financial Literacy Survey, 69 percent of people say preparing a will is very important, yet only 40 percent actually have a will. Perhaps you're one of those with a will, but that will needs updating.

Do you have any specific filing system for your financial papers or are they haphazardly thrown together? Organizing the paperwork now will make life easier at tax time and results in less clutter in the meantime.

It isn't too early to begin benchmarking against any financial goals established at the beginning of the year. Doing so now still gives you six months to refocus efforts that may have fallen short, or serves as a valid reminder of the progress you've made toward the goal.

Greg McBride is a financial analyst for Bankrate.com.

For advice regarding your specific situation, please e-mail one of Bankrate.com's Q&A experts or visit the Advice & Community channel on Bankrate.com.