Start the New Year Out Right
A new year is typically viewed as a time to reflect on the past year and to set new personal goals. But it is also a good time to review your current financial situation, resolving to make significant strides toward achieving your long-term financial goals. Consider some of the following resolutions for your 2005 list:
- Prepare a net worth statement as of January 1 so you have a snapshot of your current financial position. Compare it to last year's statement to see how much progress was made during the year.
- Develop or update your financial plan, detailing your financial objectives and how you plan to achieve them. Set exciting goals to keep you motivated to reduce current spending and to save for the future.
- Create a budget to guide your spending. Involve your spouse and children so they'll be committed to it. Include savings, at least 10% of your gross income, as part of your budget.
- Review your investment portfolio thoroughly, ensuring your investment strategy is still compatible with your risk tolerance. Calculate your rate of return, comparing it to an appropriate benchmark. Compare your actual asset allocation to your desired allocation, making adjustments if necessary.
- Calculate how much you'll need in retirement income. Then determine how much you should be saving annually to reach that goal.
- Invest in any retirement plans available through your employer. Also consider Individual Retirement Accounts (IRA's).
- Reduce your total debt, or at least reduce your borrowing costs. Try to pay off your credit card balances in full every month. Credit card interest rates are typically high and the interest cannot be deducted on your tax return.
- Review all your insurance coverage, including health, disability, income, homeowners, and auto, ensuring you're adequately protected in all areas.
- Make sure you have an adequate cash reserve fund to help deal with any emergencies.
- Start saving for your child's college education. If you've already started a fund, make sure the savings amount is adequate.
- Examine your employer's total benefit package, ensuring you use all appropriate benefits. Many are offered on a tax-free basis.
- Review your tax situation, looking for ways to reduce your tax bill. Do this early in the year so you have time to implement these strategies.
- Reevaluate your estate plan. Make sure you have an up-to-date will and have adequately provided for minor children.
- Write down your financial resolutions and assess your progress periodically.