It is hard to believe 2011 has arrived so quickly. What resolutions have you made for the new year? You may have the usual resolutions such as losing some weight, completing work around the house or improving your relationships with friends and family. These are all good, but I will suggest that you consider some others that will help you get your financial house in order.
First, get your debt under control by formulating an action plan to control your spending. This may be tough to do after the holidays, but it is essential to start quickly. TRACK YOUR SPENDING
Knowing where you money goes is very important. One way to get a handle on this is to write down every single penny that you spend over the course of a month. You can then categorize the spending to figure out where your money is going. You will be surprised at the results of this exercise. We often spend more money on frivolous things than we think. If you can reduce or eliminate the frivolous spending, you can redirect this money toward your debt.
Once you get your spending under control, I would suggest paying down your credit cards by starting with the lowest balance card first. When this card is paid off, use the money you used to pay off the first card and redirect it at the second and continue with this process until your cards are paid off.
PREPARE FOR AN EMERGENCY
Second, set up your emergency reserve fund. Generally we recommend that individuals put three to six months’ worth of living expenses away in an emergency reserve fund – savings account with a bank or credit union. This fund would only be touched to take care of unexpected home maintenance issues or car problems, etc. You can work on this simultaneously with item one by putting $20 or $25 away per week.
GET YOUR MONEY’S WORTH FROM WORK
Third, evaluate your 401k or 403b plan to make sure you are receiving the maximum company match. Most employers that offer these types of retirement plans provide some level of matching contributions. Often you must contribute up to a certain percent of your salary to receive the full match. This is a benefit you are entitled to and there are a large number people out there who do not take advantage of it. This is free money!
Fourth, evaluate your life insurance coverage. Many people in the Northeast are woefully underinsured. They may have a policy that provides for one or two times their salary and that is it. If you are married and have children, your coverage should be significantly higher. It is highly recommended that you own a policy separate from your employer-provided coverage. Most group term insurance becomes prohibitively expensive to maintain (if you are allowed to keep it all) if you are laid off or fired.
Finally, if you have not done so already, get your estate planning documents drafted. The basic documents include a will, power of attorney and living will. If you were to die, a will is necessary to ensure that your assets will pass to the people you intend. Without one, the Commonwealth of Pennsylvania will step in and dictate how your assets will be distributed.
A power of attorney allows someone to stand in for you if you were to become incapacitated and unable to speak for yourself. A living will details your wishes about how much life-sustaining care you would like to receive if you suffer an irreversible health condition. While you are getting these documents in order, you may also want to check the beneficiary designations on your investment and retirement accounts. Beneficiary designations are one of the most overlooked planning areas.
If you can start the new year by addressing these opportunity areas, you can make some significant strides toward improving your financial future. Good luck and Happy New Year!
Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Family Wealth Services, LLC and Cambridge are not affiliated.
Jim Heisler, CFP®, CDFA™, CASL™
Family Wealth Services, LLC
8725 Frankford Avenue
Philadelphia, PA 19136