These 10 tips can help you make the most of the New Year and improve your financial outlook.
1. Run your credit report.
Before you can improve your financial outlook, you need to know where you stand. Mackey McNeill, a CPA, personal financial specialist and a member of the AICPA's National CPA Financial Literacy Commission, says consumers should review their credit report for accuracy and address any errors immediately. "Your credit score is based on the contents of your credit report," McNeill says, "and frequently reviewing your credit report is a good way to protect yourself against identity theft, as you'll be able to spot any suspicious activity."
Now that consumers are allowed one free credit report from each of the three bureaus every 12 months, there's no excuse for not obtaining a copy. You can check your FICO score at sites like www.myfico.com and www.annualcreditreport.com.
2. Make a plan.
Taking time today to identify your financial goals for tomorrow will help put you on the path to affording a vacation this summer or paying off a credit card. McNeill says once you visualize your financial future, put these money-savers in motion to make some real progress:
- Become a "Two Minute Rule" shopper instead of an impulse shopper. If you see something you want to buy, walk away from it for two minutes You'll likely leave the impulse behind and enter the land of reason.
- Pay down the credit card with the highest interest rate first.
- Contribute to your IRA/Roth IRA and a 401(k) plan, if your employer offers it. Be advised that, depending on your income, if you're enrolled in your company's 401(k) plan, your tax deduction for an IRA could be limited.
- Be aware of fees on ATMs when using a bank other than your own, and know which of your credit cards has the highest interest rates. Better yet, start using cash instead of a credit card.
McNeill recommends gathering copies of your charge card receipts and checkbook statements. "Review all your expenses and put them into categories such as mortgage, utilities, entertainment, clothing and retirement," he says. Once you have all that information listed, compare your total expenses for the year to your total income, which will give you a clear picture of where you need to make immediate changes. "Reorganize those items into needs vs. wants," McNeill suggests, "since it will help you make better financial decisions to adjust your budget for the year to come."
4. Involve your family.
Make all financial decisions family decisions, says Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC), and your likelihood of success will increase dramatically. "Talk about everything from the bills to the budget," she suggests. Your home is a great place to teach your children about financial issues (and make sure you and your mate are on the same page, too), including the inevitable problems. Cunningham says, "Remembering when Mom and Dad worked through the hard times will be a nice cushion when it's the kid's turn."
5. Audit your insurance.
Linda K. Pietroburgo, MBA, CFP and a principal and family CFO at St. Louis-based Moneta Group, says check the deductibles on your property and casualty insurance. "If you're unlikely to file a claim for items less than $1,000, why have a $500 deductible?"
According to Byron Udell, founder of AccuQuote.com, a leading provider of life insurance quotes, throughout the past decade, life insurance rates have decreased. "In 2000, a 40-year-old healthy man paid $480 annually for a 20-year level term life insurance policy with a death benefit of $500,000. Today, the rate for a 40-year-old man is only $345 annually," Udell says. In other words, you may be able to save a buck or two or get more coverage for less money.
6. Pay online.
"If you haven't signed up for online banking yet, this is a great time to do so as banks offer new online rewards programs and other incentives," says Steve Shaw, Fiserv's internet banking and electronic payments group director. Online bill payments (ebills) are a convenient, secure and environmentally helpful way of delivering the bills we pay to our computers and allowing us to schedule payment with the click of a mouse button. "Online bill payment is more accurate than paper methods," Shaw contends, "and makes us more aware of when our bills are due and helps us avoid late fees on our credit cards."
Need more proof? Check out these reasons to make the move to online bill-paying:
- Avoid fees. Some credit card companies are changing terms for cardholders to increase revenue and beat new restrictions pending under the Credit Card Accountability, Responsibility and Disclosure Act of 2009. Paying bills online can help make sure you don't forget to pay your credit card on time and get hit with higher late fees.
- Save a few bucks. Although the U.S. Post Office won't like to hear this, your household can save up to $50 a year on postage fees (based on you paying 10 bills every month). Calculate your household's savings here.
- Protect the environment. According to Shaw, if you pay 10 bills online every month, you reduce 151 pounds of Greenhouse gases, prevent 37 pounds of waster water from being distributed into lakes, streams and rivers, and save four pounds of paper. Calculate your household's savings here.
Rob Garcia, president & CEO of Rob Garcia Wealth Management in Templeton, California, says "if you purchased your home several years ago and you think your property is being taxed on a value that's higher than its current market value, you may be able to reduce your annual property tax bill." Contact your county assessor's office and complete an "Application for Decline-in-Value Reassessment" form to find out.
8. Consider a Roth IRA conversion.
Starting January 1st, 2010, the $100,000 income limit that has prevented many individuals from converting a traditional IRA to a Roth IRA will be eliminated. "With a Roth IRA, growth and withdrawals are tax free," says Garcia, "so with this new change, it's a great move to convert in many cases."
9. Retire fees.
"Control your investment costs," says Russell W. Dunkin, a certified financial planner and wealth advisor in Wheeling, West Virginia. "The last report I read implied the average mutual fund costs borne by investors was about 1.5%." Many high quality, no-load funds come in around .5% or less. "As a 401k balance grows and more times passes, these fees can really add up for fund owners," says Dunkin. Although consumers who own funds receive prospectuses and other literature, a quick and easy way to check on your funds expenses is through either Morningstar.com or Google Finance.
10. Look ahead.
In 2010, the Bush tax cuts are likely to expire, and although all tax brackets may not be affected, current government policy, such as health care reform, would indicate that people at higher income levels may have a significantly higher tax burden going forward. Talk with your financial advisor and your tax professional to plan income to the best of your ability for 2009 and 2010 -- especially if you're self-employed or have executive compensation options to consider.
Gina Roberts-Grey is a freelance journalist specializing in health, celebrity and consumer issues.