Getting Fiscally
Fit In 2007
Resolutions are
standard fare at the start of any new year. But most of those resolutions
seemingly are crafted by institutions and organizations striving to help
Americans secure a financially secure future. Here’s a sampling of
resolutions that Americans might consider in 2007.
Attack credit card
debt. Try to wipe clean
your credit slate, suggests the Texas Society of Certified Public
Accountants. That group suggests adding up how much you owe on each of
your credit cards and then creating a plan for paying off your debt,
starting with the credit card with the highest interest rate. In addition,
call each of your credit card issuers and try to negotiate a lower rate.
Going forward, the Texas CPA Society suggests that Americans resolve to
make all purchases with cash or a debit card to ensure that you spend only
the amount you have. Meanwhile, Reginald Bowser, CEO of RolloverSystems,
said in a recent release that "no one should have more than two
credit cards, and your total outstanding balance should never be more than
30 percent of the total credit between your cards." For his part,
Bowser recommends paying down your balance monthly, if possible. He also
recommends that Americans seek out low interest rate credit card companies
(Web sites such as bankrate.com offers objective listings of card rates
and information for free).
Save, save, save. Make
saving a priority and pay yourself first, is another suggestion from the
Texas Society of CPAs. Don’t wait until all your bills are paid and you
end up neglecting your savings. Most banks and investment companies have
processes that enable money to be deposited directly from your paycheck or
checking account into a savings or investment account. Next, pick two or
three spending categories – entertainment and clothing for instance –
and try to trim 15 or 20 percent from the amount you typically spend.
Divert this money to your savings and you’ll be surprised how quickly
your balance grows. For his part, Bowser recommends putting aside ten
percent of disposable income - first in cash until the equivalent of three
months' salary has been saved, and then in higher yield investment
instruments.
Know what you have
to work with. Gather your
bank statements, bills, investment accounts and retirement accounts and
figure out your net worth, suggests OppenheimerFunds. What is your annual
cash flow, income and other revenue, and how much are your total expenses?
Knowing how much money you have is a critical first step to building a
financial plan.
Review your
insurance policies. You
should review your homeowner's insurance at the start of each year to
determine whether your policy amounts are keeping pace with the increased
value of your home, according to the Texas Society of CPAs. Do the same
with your life and disability insurance to ensure that you have sufficient
coverage.
Make tax planning a
year-round activity.
While some tax-saving activities can be executed at year-end, others
require time and planning, the Texas Society of CPAs reports. Examples
include offsetting investment gains with losses, shifting income,
restructuring your debt to take advantage of tax-favored borrowing and
maximizing your itemized deductions.
Make a will.
Start off 2007 by resolving to create a will, if you don’t already have
one, the Texas Society of CPAs suggests. A will ensures that your personal
belongings and assets will go to the beneficiaries you choose. If you have
children, a will also allows you to appoint a guardian to care for them in
the event of your death. Without a will, that decision may be left to the
courts.
Set very specific
short- and long-term goals. Women, even more so than men, are
extremely goal oriented, and need to understand that retirement and
healthcare need to be their number one long-term priorities,
OppenheimerFunds reports. Women also respond well to detailed action steps
complete with specific dollar amounts so planning for both short and long
term goals can help them succeed in the future.
Work with a
financial planner. All Americans, but especially women, should work
with a financial planner to come up with an objective, reality based plan
to tell them where they are and where they are headed if they stay on the
current course of saving and spending, OppenheimerFunds suggests. Women
tend to be focused on the present and haven't given much thought to how
they will finance their future. Advisers can help women take a look at
their unique implications, such as long life expectancy, the impact of
inflation, potential issues associated with relying on a spouse's pension
or health benefits, the timing of Social Security and Medicare benefits
and the dangers of carrying too much debt.
The important thing
to remember about making resolutions is to regularly check up on them
throughout the year to make sure you’re on the correct path to financial
freedom.
January 2007— This column is
produced by the Financial Planning Association, the membership
organization for the financial planning community, and is provided by
McGuire & Co., LLC, a local member of the FPA.
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