1. Put together a
monthly spending plan.
Don't call it a budget. People
hate to diet and hate to budget. Call it a spending plan.
Hundreds of people write me each year with credit problems.
The root of the problem, barring some cataclysmic event
in their lives, is that they aren't living within their
means. A monthly spending plan puts you in charge of where
the money goes. That's a great first step toward controlling
your finances. Creating wealth to meet your future goals,
like college for the children or a comfortable retirement
for you, starts with investing. Investing means not spending
all of this year's income. If you're spending more than
you make, you don't have money to invest for the future.
You may have to dig yourself out of debt first before you
can start investing, but once those credit cards are paid
off, think of what you can do with the money you're not
spending on interest. Consumer Credit Counseling Services
that you can access online to develop a spending plan. Alternately,
your computer may have come with money management software
as part of its software bundle.
2. Write a will (or
review your existing will).
You know you should have one.
None of us are immortal. I like the idea that
I'm directing the action from the hereafter. Nolo.com
can give you details about the can- and can't-do's. The
process of drafting a will should help determine if you
should attempt to avoid probate, help you decide if you
want to set up a living trust, and clarify some estate planning
3. List your accounts,
insurance policies and other important documents.
Does your spouse know about all
of your brokerage accounts, bank accounts, insurance policies
and safe-deposit box? Does he or she know where you keep
a copy of your will, too? Great! Now what if one of your
children had to try and pull all this information together?
You don't want them to have to find out about a forgotten
account by notification from an unclaimed property firm.
They could always go to missingmoney.com,
but it would be a whole lot easier and more timely if you
write it all down and tell your spouse and children where
you keep the list.
4. Maximize your
401(k), 403(b), IRA or Roth IRA contributions (Review).
If your company matches part of
your 401(k) contributions and you're not contributing up
to the limit of the company match, then make this the year
that you do. Pay attention to how that money is invested.
If you don't feel you have enough choices in your retirement
account, lobby your plan administrator for more choices.
That's especially true if you are paying sales loads to
invest in the mutual funds. Do you remember who the beneficiary
is on the account? If it's your ex, and you don't want it
to be, make the change now.
Check your credit report.
Checking your report annually
is $9 well spent. Equifax
is the only one of the three major credit-reporting bureaus
that can both accept your request and deliver the report
the report for inaccuracies will protect your credit
rating. Making sure no one is opening accounts using your
name and Social Security number can also help protect you
Close one credit card account.
While reviewing your credit report, you may notice a card
or two that you had forgotten about. Closing down those
accounts doesn't count for this item. I want you to close
something that you're going to miss at least a little. Would
you rather have four Visa and MasterCard accounts, each
with a $500 limit, or two accounts, each with a $1,000 limit?
(Adjust the amounts so the example makes sense for your
financial situation.) If you must have a Macy's, Bloomingdale's,
JCPenny, Sears, etc. charge account to receive notices about
sales and promotions, then pick another account to close.
to cancel a credit card.
7. Know your marginal
Your marginal tax rate is the
percentage of income that goes to pay taxes on your next
dollar of income. You can have a marginal rate for both
state and federal income taxes. If you're having a tax professional
do your taxes this year, ask them to tell you your marginal
rate(s). If you do it yourself, you'll figure it out while
you're doing your taxes. Knowing your marginal rate helps
you determine the after-tax cost of debt on your mortgage,
figure out your taxable equivalent yield on municipal bonds,
and help you realize why a tax-deductible home equity loan
can make sense vs. a non-deductible car loan.
Determine if you can cancel the PMI policy on your mortgage.
Homeowners hate paying private
mortgage insurance (PMI). Recent legislation requires lenders
to cancel PMI when the loan-to-value (LTV) gets below 78
percent. Unfortunately, that's only for mortgages financed
after July 29, 1998, and the value used is the appraised
value at the origination of the mortgage. But any homeowner,
regardless of when he financed his mortgage, can request
PMI cancellation when the LTV gets to 80 percent.
If your home's value has appreciated,
the LTV can get below 80 percent years faster than the way
the law allows lenders to calculate LTV. You shouldn't have
to refinance to get rid of the PMI, but your current lender
isn't champing at the bit to help you drop the policy. Most
homeowners can do a reasonable job of estimating their home's
appraised value. Divide the loan balance by the appraised
value to find the LTV.
Example: LB/AV = LTV $90,000/$119,000
= 75.6 percent
You will pay for the costs of a professional
appraisal so if the LTV you calculated is still in the 80s
you may want to wait before requesting PMI cancellation.
You also need to be current in your payments and have a
strong payment history to request cancellation. See this
for additional information.
If you have an FHA or VA loan, this
advice won't work for you since government-insured FHA and
VA loans require mortgage insurance for the life of the
9. Plan for your
children's college education.
My daughter thinks she wants to
be a Florida Gator. She could make a worse choice, as any
Gator would tell you. As a Nittany Lion, I can think of
a better choice. (Please, no e-mails from avid college football
fans.) Regardless of her choice, college
savings plans have come a long way from plain vanilla
state-sponsored pre-paid tuition plans. What's available
in your state is just a click
10. Invest some
human capital in your community.
We all want to live in a great
community. Volunteering in your community will help you
reach that goal.
Don't know where to go? Click here.
11. Allow for some spontaneous consumption.
There's more to life than bills
and work. Put together a list of things you've always wanted
to do. Then do one or two of the legal ones and see how