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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 offer 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 Don McCarty of
Financial Decision Partners, a local member of the FPA.
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