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Dr. Don's 2005 top ten list

Dr. Don TaylorTo get a picture of the forest, you have got to draw some trees. Take some time during this holiday season to get your financial affairs in order and reflect on what and how you're doing financially, and how it's going to help you get what you want out of life. Have a joyful and prosperous New Year.


1. Think about your life goals
2. Develop a spending plan
3. Know your net worth
4. Keep a little green book
5. Build an emergency fund
6. Review and rebalance your portfolio
7. Review your credit reports
8. How to be left alone
9. Estimating your retirement nest egg needs
10. Stop phishing
11. Be a part of your community (Bonus)

Think about your life goals
What do you want out of life? The trend in financial planning in the new century is to work with people to help them determine what they want out of life, and then establish financial objectives that, if met, will facilitate the client's ability to achieve those life goals. Money becomes the catalyst instead of a goal. You can make a cogent argument that financial advisers aren't adequately trained, or even needed, to help you develop your life goals. That's fine. Meet with a financial adviser with your life goals in hand and they'll thank you for giving them a framework to work with to formulate financial objectives that help you reach those goals.

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Develop a spending plan
Most people have a pretty good handle on the income part of the equation -- it's the outgo part that remains a mystery. Where did the money go? Plan for spending and you'll know. The economist in me knows that consumption vs. investment decisions are a critical part of allocating income to invest for the future. While I've never been a member of the "Lose the Latte" club, whose members advocate that skipping expensive coffee is the answer to saving for your future, financing a caffeine habit doesn't make any sense either. Strike a balance between instant and delayed gratification. (Dr. Don only owns Starbucks® stock within the confines of his index mutual funds.)

You don't need to have financial planning software and a computer, or even a Web-based worksheet, although both are widely available. A piece of paper, a pencil and a four-function calculator will do just fine. Bankrate's Budgeting 101: Start your own budget is a good place to begin even though it's called a budget instead of a spending plan.

If you're outspending your income, something has to give. Reconsider your spending plan to make room for investing to build your net worth.

Know your net worth
This is another simple exercise that's definitely worth the time spent. List your assets, subtract your debts and what's left is your net worth. What you own, less what you owe, is what's yours. Plan to have your net worth next year exceed this year's number.

Live long enough and life is bound to throw you a setback or two, but you should expect your net worth to increase over time by spending less than you make and investing the difference to build the wealth that you'll use to meet your financial objectives.

That's another paper and pencil exercise, though plenty of online calculators are available, including Bankrate's Net Worth Calculator.

Keep a little green book
If you were to die tomorrow, how long would it take your heirs to put together the pieces of your financial puzzle? Just like with a puzzle, being able to look at the big picture makes it easier to fit the pieces together. A notebook with a listing of your bank accounts, brokerage accounts, retirement accounts, pension rights, insurance policies, etc., along with a note letting heirs know where to find an executed copy of your will, is an important list to keep current.

This is also an act of kindness on your part. Let your loved ones deal with their grief, not chase down a statement. Don't have a will yet? It's time to get one, or have an existing will updated.

Any color book, save black, will do.

Build an emergency fund
Keeping some money in reserve for financial emergencies is a sound practice. For most people it's where they should start investing. The three main financial assets are stocks, bonds and cash. The term cash is shorthand for short-term, liquid and safe investments such as a money market account or a money market mutual fund. As you build wealth, you can become more flexible in how your emergency fund is invested, but starting out it's best for the money to be invested in cash.

A common rule of thumb is to have three to six months' worth of living expenses available as cash in your emergency fund. There are plenty of reasons to add, or even reduce, that amount but it's a reasonable target. Bankrate's article, building an emergency fund, offers more information.

Review and rebalance your portfolio
It's important to take a holistic view of your investments. After all, it's all your money. Concentrate too much of your wealth in one investment and you've increased the risk of your portfolio. Two common examples are being house rich and being too heavily invested in your company's stock.

Rebalancing forces you to maintain a disciplined approach to your investments. If your targeted breakdown between stocks, bonds and cash is 60/30/10 and you have 80 percent of your money in stocks, then selling off part of your stock portfolio to get back to your target allocation rebalances your portfolio. You can get yourself in trouble here if you don't consider the tax implications of your actions or don't look at the big picture. Target allocations will also change over time.

My favorite asset allocation calculator, at least for a quick and dirty estimate of a starting point, is "Jim Cramer's Asset Allocation Adventure." Read the companion piece for more insight into asset allocation. SmartMoney University's Asset-Allocation System is another good choice to get a read on asset allocation in your portfolio.

Review your credit reports
At a minimum, you should review your credit reports from the three major credit bureaus once every two years. Recent federal legislation requires the bureaus to provide a free copy of your credit report once a year. National rollout of this program started on the west coast in December and is working its way east so everyone is eligible by fall 2005. Bankrate has a map showing when the free reports will be available to residents of your state. Mark your calendars.

You'll have three options to request your credit report. First, you can visit, which is the only authorized source for consumers to access their annual credit report online for free. Or, call 877-322-8228. Lastly, you may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281.

If something's not right then you need to use the dispute process of the Fair Credit Reporting Act (FCRA) to attempt to correct your credit report. The credit bureaus make it easy to file a dispute online, but I feel it's better to make your case in a letter. If you don't give them tangible evidence to go on, it diminishes your chances of winning the dispute. The credit bureaus have 30 days to rule on the disputed item. If you lose the dispute, you can write a short note explaining your position for distribution with your credit report.

The Federal Trade Commission's Facts for Consumers series publishes How to Dispute Credit Report Errors. That along with Bankrate's guide should improve your odds of winning a dispute.

How to be left alone
Value your privacy as much as Garbo? Sign up for the do-not-call list. Many of you did that with your landlines last summer, but you can put your cell phones on the list too. The Federal Trade Commission's Web site links to, where you can register up to three phone numbers at a time. There was a hoax e-mail that made the rounds this fall warning people who they only had until Dec. 15th to register their cell phones on the registry. That's not true, although it prompted me to register my cell phone.

Stop getting those pesky credit card or insurance offers in the mail by calling 1-888-5-OPT-OUT or by going online at Unless you change your mind at a later date, the restrictions are in place for five years. You'll save some trees and reduce the chance of someone using the mailing for identity theft purposes. You can always shop credit cards on Bankrate using its Credit Card Search.

The Direct Marketing Association also maintains listings of consumers who prefer not to receive mail or telephone solicitations. The DMA can provide information about opting out of lists produced by companies that subscribe to its Mail and Telephone Preference Services. There's a nominal charge to request the service online, but it's free if you mail in your request. Visit its Web site for more information.

I don't see the need to register for the telephone solicitation list if you sign up for the national do-not-call registry but signing up for the mailing list should expand the number of firms that know you don't want to be bothered with their marketing pitches.

Estimating your retirement nest egg needs
All the talk about the need for Social Security change this year has me thinking about investing more in my retirement accounts. If you're over 25 and have been contributing to Social Security, the Social Security Administration sends you an annual statement about three months before your birthday that provides you with an estimate of what your Social Security benefits will be in retirement.

Too many people have a $1 million bogey for retirement. They think that if they can build a retirement portfolio of a million dollars they'll be set for life. Pulling a number out of the air isn't retirement planning. If you choose too low a number, you risk outliving your portfolio; too high a number, you stay on the job longer than necessary to meet your income needs in retirement.

Bankrate's Retirement Worksheets take a two-step approach to sizing the nest egg. First you are asked to estimate how much income you'll need in retirement using today's dollars. Take your current income needs and subtract out what you expect to receive in Social Security and pension benefits in today's dollars. The Social Security statement provides the estimate in today's dollars and your annual pension statement should do that as well.

If you construct a spending plan, you could use the total annual expenses as a guide to what you might need in retirement. Financial advisers recommend different things here. Some say you need only 75 percent of these annual expenses in retirement because you're not commuting to work, etc., but other advisers say budget for a full 100 percent because your retirement hobbies and travel will take up any slack. I'm in the latter camp.

Stop phishing
Holy mackerel! Phishing is an Internet scam that uses spam or pop-up messages to trick you into disclosing your bank account, credit cards, Social Security number and personal identification number (PIN) or other financially sensitive information. It's an insidious attempt at identity theft. The FTC has a Phishing guide designed to help you protect yourself against this problem. Here are a few tips from that guide:

If you get an e-mail or pop-up message that asks for personal or financial information, do not reply or click on the link in the message.

Don't e-mail personal or financial information. E-mail is not a secure method of transmitting personal information. If you initiate a transaction and want to provide your personal or financial information through an organization's Web site, look for indicators that the site is secure, such as a lock icon on the browser's status bar or a URL for a Web site that begins "https:" (the "s" stands for "secure"). Unfortunately, no indicator is foolproof. Some phishers have forged security icons.

Review credit card and bank account statements as soon as you receive them to determine whether there are any unauthorized charges. If your statement is late by more than a couple of days, call your credit card company or bank to confirm your billing address and account balances.

Use anti-virus software and keep it up to date.

A firewall helps make you invisible on the Internet and blocks all communications from unauthorized sources. It's especially important to run a firewall if you have a broadband connection. Finally, your operating system (such as Windows or Linux), may offer free software "patches" to close holes in the system that hackers or phishers could exploit.

Be a part of your community (Bonus)
Everyone wants to live in a great community, but it's people, not houses, that make a community great. Be a better person and you get a better community. Volunteer your time and get involved in your community. You'll make a difference and feel great doing it.

50 great financial strategies for 2005

-- Posted: Dec. 28, 2004




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