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While you’re making your New Years’ resolutions, don’t forget to
give your financial house an annual tune-up. As the old saying goes,
an ounce of prevention is worth a pound of cure, and few adjustments
now could save you thousands of dollars, not to mention some major
headaches, in the months and years to come.
The first step in any financial tune-up is to reassess your
financial goals and make sure you’re on track to reach them. For
instance, has your target date for retirement changed? Has a spouse
had a career move that affects how much you have going into savings?
Are you planning any major purchases this year, such as a kitchen
remodel or buying a car?
If you depend on your investments for income, perhaps your cost of
living has increased and you need to find a way to increase your
returns. Maybe you’ve downsized your home and your income needs have
decreased. Whatever the case, now is the time to determine what your
current needs are and how to adjust your investments to improve
their ability to achieve your goals.
The second step of your financial tune-up is to make sure your
estate planning and insurance policies are up-to-date and in order.
I know it’s not a lot of fun to do this, but believe me, if you
could talk with folks like I have, who didn’t have their houses in
order and are paying the price, you’d gladly take the time to do it
now. And it’s not as bad as you think.
Read over the estate documents you have, such as a will, living
trust, powers of attorney, etc., and make sure they reflect your
current wishes and situation. Don’t have the right documents in
place? No time like the present to take care of it. Not sure what
you need? Just ask me.
Review your insurance policies, making sure to verify your liability
coverage. For instance, most drivers don’t carry enough uninsured
motorists coverage. And after all the hurricanes of 2005, make sure
you know exactly what is covered in your homeowner’s policy. If you
have questions, make an appointment with your insurance agent and
know for certain. Don’t forget about reviewing your long-term care
and disability policies as well. And if your needs for life
insurance have changed, maybe it’s time to cancel some policies or
up your coverage.
If you’re still employed, talk with your human resources department
and make sure you’re maximizing all available benefits. Max out your
401k and any matching contributions from your employer. See if there
are ways to lower your health insurance costs. Some even offer
tuition reimbursement.
The last major step of your financial tune-up is a close inspection
of your investments. If you have mutual funds, check out your funds
at www.Morningstar.com. By entering each fund’s symbol, you can
quickly measure your fund’s performance, rating, how they compare to
similar funds, and whether your fund has had a recent management
change that could affect performance. You want to be in funds that
have consistently performed well over the long haul, not just
one-year-wonders. If you happen to own some funds that are laggards,
then fire them and replace them with higher-ranked ones.
When determining what funds to have, don’t just look at performance,
but also look at diversification. If you own several funds, but
they’re all invested in large-cap companies, that’s not proper
diversification. You should spread your eggs among several different
categories, types and strategies. And don’t forget to make sure your
company retirement account isn’t 100% in company stock.
Make sure you’re not too over-weighted in any one category. For
example, energy and international stocks did very well in 2005. If
you have hefty gains in those holdings, you might want to rebalance
some of those profits into other categories.
An annual financial tune-up might only take a few hours, but its
benefits could last a lifetime. If nothing else, you’ll gain the
peace of mind that you’re on track to reach your financial goals and
you have your estate in order. If you uncover some problem areas,
you’ll be able to make changes now before you have to pay for costly
mistakes.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to http://www.guardingyourwealth.com and
click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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