Posted on Jan 07, 2013 | Category: Personal Finance
This content is provided courtesy of USAA
By J.J. Montanaro, CERTIFIED FINANCIAL PLANNER™ and Scott Halliwell, CERTIFIED FINANCIAL PLANNER™
Unlucky 13? Not on our watch. Although this number drums up all sorts of negative connotations, we’d like to reverse that trend. In support of this idea, we’ve come up with 13 tips to help you make 2013 a year during which financial luck has nothing to do with four-leaf clovers or horseshoes.
- See where you stand. Lay out your cards and see what you have. Review your net worth (assets and liabilities), cash flow (income and expenses) and insurance coverage. Map out your financial goals for the year and reconfirm your longer-term goals. Write them down and prominently post them (refrigerator, mirror, etc.) to keep them front and center.
- Know where it goes. Really get a handle on your money this year by recording everything you spend, every day. Categorize expenses and total them up weekly. Put pen to paper or use online tools to help you do the tracking. After a couple of months, scrutinize each category for places to cut back or cut out altogether. Finally, save what you’ve cut each month.
- Incorporate new cash. A pay raise, inheritance or tax refund can make you feel like you just hit the jackpot. Make that feeling last by incorporating the extra money into your savings and debt-elimination strategy before you blow it on a big-screen TV or fritter it away. Increase your retirement plan contributions, accelerate payments to your credit cards or other debt, or set up an emergency savings account.
- Attack debt. Who’s often the biggest winner in the consumer debt game? (Hint: It’s not the borrower.) Become the victor this year by eliminating or significantly reducing your consumer debts. First, make a commitment to not add debt. Then, put a plan in place to pay down what you have. To get a bigger emotional lift, start with the smallest balances first. To get a bigger financial lift, start with the highest interest rates first.
- Check your credit. Luck has nothing to do with a credit score of 760 or higher. However, that type of score will help you win big with low-interest loans and look good in the eyes of landlords, insurers and prospective employers. Check your credit report for free at www.annualcreditreport.com, and for a few bucks more see your credit score. See where you stand, ensure the information is accurate and work on it if necessary.
- Consolidate and simplify. “Don’t put all your eggs in one basket” is typically sound financial advice. However, having so many baskets that you can’t keep track of them can defeat the purpose. It’s very difficult to manage your portfolio or spending habits when your money is strewn across multiple accounts and institutions. Come up with an investment plan and consolidate your holdings into no more than a few baskets. Use online bill pay and automatic investments to stay on track.
- Protect your family. A shocking 35 million American households are rolling the dice — they have no life insurance. Without life insurance coverage, an already bad situation can get a lot worse in a big hurry. Protect your family and make sure you’ve got adequate life insurance coverage to take care of them if you’re not around to do it yourself.
- Protect your stuff. Lucky or not, stuff happens. Cars get wrecked. Storms and fires destroy houses. Things get stolen. To decrease the financial impact of such events, make sure you have adequate insurance coverage for your home, rented apartment or condo and valuable personal property (such as expensive jewelry).
- Initiate retirement savings. It’s never too early (or too late) to start preparations for the golden years. Stashing a little money in your 401(k) or Thrift Savings Plan can go a long way. Starting early also can help you reduce the stress that comes with hitting the half-century mark with a hankering for retirement and double zeros in your nest egg. So this year, start a Roth or traditional IRA, an employer plan or even a nonretirement account. Whatever the way, start saving today.
- Save now for near-term goals. “Plan and save” is a much better financial strategy than “don’t plan and borrow.” Big recurring expenses, such as holidays, vacations and back-to-school shopping, provide the perfect opportunity to develop a monthly savings plan to accumulate, rather than borrow, the money you’ll need. Would you rather make high-interest payments each month to a credit card company or make payments to yourself that earn interest?
- Look at liability. If you’re found legally responsible following an incident or accident at your home, on the road or on the water, you could find yourself at the wrong end of a costly lawsuit. Protect yourself by making sure you have adequate levels of liability insurance offered through homeowners, renters, auto policies or separately through a personal umbrella policy.
- Shop smart. Consumer spending makes up roughly two-thirds of the U.S. economy, so there’s no denying we’re all spending a fair amount of time shopping and buying. This year, commit to adding the adjective “smart” before your purchases. Give yourself an edge by implementing a cooling-off period before big-ticket buys, doing comparison shopping and committing to cash purchases (yes, you can save and buy).
- Create an estate plan. Wealthy or not, everyone needs a will and/or a trust, a durable power of attorney, a health care power of attorney and a living will. Many families should also discuss guardianship arrangements for young children. Preparing these documents can be unpleasant. But the temporary pain of filling out the paperwork now can make life easier for your family later if you suddenly become incapacitated or pass away.