Happy New Year! By now, you’ve probably made a few New Year’s resolutions. However, if you’re like many Americans, improving your financial condition is not uppermost in your mind. In fact, according to a recent survey by Country Insurance & Financial Services just 17 percent of respondents plan to focus primarily on improving money matters in 2008. Instead, more people resolved to lose weight and exercise more (24 percent) or to spend more time with friends and family (23 percent). Interestingly, the same study found that a resounding 75 percent plan on making necessary adjustments to their finances eventually, in the year ahead. At a time of year that’s ideal for recommitting ourselves to things that are important to us, here are my top picks for resolutions for financial fitness:
- Look back before looking ahead. Your life can change significantly over the course of a year. Did you get married, have a child or grandchild, change jobs, or open your own business? Some of these changes could require that you adjust your financial goals and objectives. Remember, it’s always easier to enact specific investment strategies if you know why you’re implementing them
- Maximize your pretax benefits. Contributing to a pretax savings plan like a 401(k) or 403(b) reduces your current-year taxable income and delivers the benefits of tax-deferred growth. If you received a raise, consider increasing your contribution to your retirement savings plan. Also, if you are at least 50 years of age, you can contribute an extra $5,000 thanks to the IRS’ catch-up provision. If you’ve written your last college tuition check or paid off your mortgage, you may have extra cash to direct toward retirement.
- Update your insurance. Sure, you have life, homeowners and auto insurance, but what about personal liability and disability coverage? Dig into your policies. Homeowners insurance usually covers wind and fire damage, but not flood damage. If that’s a worry, you need a federal flood insurance policy. Also, be sure your estimates of the value of your household goods are accurate. Some may have increased in value and others may be more expensive to replace than you think. And what about your new HD TV? You also may need to insure jewelry separately, depending on your policy limits. Look for opportunities to cut premiums, too. For example, do you really need collision on that clunker of a third car?
- Check your credit report. You can request a free credit report, a history of your borrowing and loan-paying habits, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian, and TransUnion. Just visit AnnualCreditReport.com, the official site set up by the Federal Trade Commission. Monitoring your credit report is a crucial step in protecting yourself from identity theft. You also may request your credit report by calling 877-322-8228.
- Disaster-proof your financial records. The recent California wildfires should prompt us to ask: “Am I prepared to get out of my home quickly?” To that end, put copies of all your important papers including your trust, will, passport, mortgage and financial statements, car titles, birth certificates, and other personal records in a bag that you can grab quickly. The Red Cross offers tips on what else include at their website.
- Consider your estate plan. While your trust or will is the cornerstone of your estate plan, several additional documents play a supporting role. A letter of instruction provides your family members and estate executor with the location of assets and financial records and contact information for professionals you worked with. An ethical will, often written as a letter, communicates your family history and values to your heirs. Also, if haven’t done so, name a medical advocate, someone with the authority to make medical decisions in the event you can’t make them yourself.
While all of these topics are worthy of your attention, sometimes we take on too much at one time. Then, instead of being able to maintain a host of new habits, we fail because we feel overwhelmed. To avoid this pitfall, choose a few areas on which to focus. In the same way you can be more successful losing weight if you get into the habit of exercising once a week before totally overhauling your diet, then small, feasible financial changes are easier to incorporate gradually into your busy life. Remember, the entire year stretches before you and you don’t have to accomplish everything by next week. In fact, new research from Max Bazerman, a professor at Harvard Business School, found that people are more likely to choose a path they believe will be good for them when the choice will be implemented in the future rather than in the present. The professor calls this phenomenon the “future lock-in.”So, open your calendar and schedule a few of these suggestions, because a series of successive small steps can equal a bold leap by the end of 2008.