you’re making your New Years’ resolutions, don’t forget to give your
financial house an annual tune-up. As the old saying goes, an ounce of
prevention is worth a pound of cure, and few adjustments now could save
you thousands of dollars, not to mention some major headaches, in the
months and years to come.
The first step in any financial
tune-up is to reassess your financial goals and make sure you’re on
track to reach them. For instance, has your target date for retirement
changed? Has a spouse had a career move that affects how much you have
going into savings? Are you planning any major purchases this year,
such as a kitchen remodel or buying a car?
If you depend on
your investments for income, perhaps your cost of living has increased
and you need to find a way to increase your returns. Maybe you’ve
downsized your home and your income needs have decreased. Whatever the
case, now is the time to determine what your current needs are and how
to adjust your investments to improve their ability to achieve your
The second step of your financial tune-up is to make sure
your estate planning and insurance policies are up-to-date and in
order. It’s not a lot of fun to do this, but if you could talk with
folks who didn’t have their houses in order and are paying the price,
you’d gladly take the time to do it now. And it’s not as bad as you
Read over the estate documents you have, such as a will,
living trust, powers of attorney, etc., and make sure they reflect your
current wishes and situation. Don’t have the right documents in place?
No time like the present to take care of it.
insurance policies, making sure to verify your liability coverage. Make
sure you know exactly what is covered in your homeowner’s policy. If
you have questions, make an appointment with your insurance agent and
know for certain. Don’t forget about reviewing your long-term care and
disability policies as well. And if your needs for life insurance have
changed, maybe it’s time to cancel some policies or up your coverage.
you’re still employed, talk with your human resources department and
make sure you’re maximizing all available benefits. See if there are
ways to lower your health insurance costs.
The last major step
of your financial tune-up is a close inspection of your investments. If
you have mutual funds, check out your funds with your bank. This way
you can quickly measure your fund’s performance, rating, how they
compare to similar funds, and whether your fund has had a recent
management change that could affect performance.
You want to
be in funds that have consistently performed well over the long haul,
not just one-year-wonders. If you happen to own some funds that are
laggards, then fire them and replace them with higher-ranked ones.
determining what funds to have, don’t just look at performance, but
also look at diversification. If you own several funds, but they’re all
invested in large-cap companies, that’s not proper diversification. You
should spread your eggs among several different categories, types and
strategies. And don’t forget to make sure your company retirement
account isn’t 100% in company stock.
Make sure you’re not too
over-weighted in any one category. For example, resource-based stocks
did very well in 2006. If you have hefty gains in those holdings, you
might want to rebalance some of those profits into other categories.
annual financial tune-up might only take a few hours, but its benefits
could last a lifetime. If nothing else, you’ll gain the peace of mind
that you’re on track to reach your financial goals and you have your
estate in order. If you uncover some problem areas, you’ll be able to
make changes now before you have to pay for costly mistakes.