Every January, some of us look in the mirror, dust-off our
running sneakers, and set advantageous goals to lead a
healthier and more active lifestyle. Unfortunately, little time
or attention is given to address and fix our own fiscal
well-being. Similar to setting health goals, financial planning
goals can be best achieved if they are specific and realistic.
Goals should have a time frame to implement and be written on
paper. The following are the top five recommended financial
resolutions to consider for 2013.
Create an action plan and timeline to pay off your credit
card debt as soon as possible (for example, over the next 18
months) and defer any major purchases until you can pay for
them with cash. Develop a monthly budget and track your
expenses on a spreadsheet or a mobile phone application.
Dedicate any available discretionary cash flow to aggressively
eliminate your credit card debt. Pay off debts with the highest
interest rates first. Be careful to not quickly consolidate and
close out any existing lines of credit, as that could adversely
affect your credit score. Also, if you are a baby boomer
nearing retirement with a mortgage, create an action plan to
pay off that obligation within four years, before or after,
your retirement goal.
Protect your credit score.
Regardless of your age, your credit score may come into
play for many critical activities from renting an apartment to
applying for a new job. Protect and improve your credit score
by keeping your balances low and paying off the majority of
your expenditures every month. The FICO (Fair Isaac
Corporation), the best-known and most widely used credit score
model in the United States, is calculated statistically, with
information from a consumer's credit files. A FICO score can be
valued between 300 and 850.
Carefully review your credit reports at least annually to
make sure you are not subject to identity theft. Identity theft
occurs when thieves obtain your personal information, which can
then be used to open new credit card accounts, obtain loans, or
even clone your ATM card. Take action to protect yourself by
shredding sensitive documents and being extra careful when
sharing confidential information online (even Facebook). Obtain
your free credit report from the big three bureaus (Equifax,
Experian and TransUnion) at annualcreditreport.com .
3. Create a 'rainy day' fund.
Develop a cash reserves bucket. Most people (before or
after retirement) do not have enough cash reserves handy to get
by for even two months in case of emergency or unemployment.
They then start relying on retirement accounts, credit cards,
family and personal loans to pay their bills and put food on
the table. With many people unemployed for more than a year,
you will need to save at least 12 -18 months of cash reserves
to safely plan for your family and home necessities.
4. Increase your retirement savings.
Many Americans are significantly underprepared to retire
by age 65 due to insufficient savings and end up dependent on
Social Security as their primary income resource. Lack of
planning and work-place financial education seems to be an
ongoing epidemic in today's society. Make a conscious effort to
put off short term (instant gratification) purchases and
instead make retirement savings a monthly expense item on your
balance sheet with every paycheck. Dedicate at least 15% of
your annual gross earnings for this goal. If you have the
ability to receive a company match (such as in your employer's
401(k) plan) contribute at least enough to receive this 'free'
A good rule of thumb to consider is that you may need 13 to
15 times your final salary in a lump sum to retire successfully
(considering a 4.5% portfolio distribution rate in retirement).
Work with a financial planner (such as a CERTIFIED FINANICAL
PLANNER™ practitioner from the Financial Planning Association)
to assess your specific retirement budget and lifestyle goals
on paper and then put together an action plan to achieve them.
Once you retire, continue working with your trusted advisor to
implement an ongoing investment and income distribution plan to
keep you on track for the long run. Remember that in the end,
you can't put your retirement on a credit card.
5. Protect your legacy.
Many people do not even have their basic will and legal
documents in order (or may never have even completed in the
first place). At a minimum, make a resolution to meet with an
estate planning attorney in 2013 to complete your will, durable
power of attorney, medical power of attorney, living will and
HIPAA (Health Insurance Portability and Accountability Act)
release forms. For those who care for minor children or
incapacitated adults, consider to assign a guardian and create
trusts to protect and care those you love. For those who have
large or complicated estates, work with an attorney on advanced
estate planning techniques.
Finally, carefully review all of your investment and
insurance account beneficiary designations to make sure they
mesh with your current goals and wishes for your family and
estate, as specific account level beneficiary designations will
override your will and a court of law.
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