There's no better time than the start of a new year to take a fresh look at your finances. The year-end statements and forms arriving in your mailbox are just what you need to get a comprehensive look at where you stand. • Here are some tips to help you start the year right:
Figure out where you stand: Use your year-end statements to add up everything you own. Subtract what you owe and you've got your net worth. Do this each year and you can track whether you're moving forward or backward financially. For the most comprehensive approach, include your home, vehicles and other property.
Know where your money is: Do you have too much in stocks or too little? Do you have enough in cash or CDs to tide you through an emergency? The right amount will vary depending on your age, overall wealth and risk tolerance. If you've drawn down your cash, you may need to sell other assets to replenish it. If you've got all your money in bonds, you may want to add some stocks for growth. Move your money if things have gotten out of whack.
Consider refinancing: You've probably already refinanced your mortgage if you were eligible, but what about your car loan? Many people don't realize that other types of loans can be refinanced. And could you move your credit card debt to a lower-interest card through a balance transfer? That's a form of refinancing that may be worthwhile if the difference in rates is enough to overcome the balance transfer fee.
Get your just rewards: Are you paying your credit card balance off each month? Be sure to use a card that gives you cash back or another benefit you really value. Keep your extra cash in a money market account that pays interest. It's worth a few minutes of your time to research rates.
Do something about debt: If you're carrying a balance on your credit cards, it's time to get serious about eliminating debt.
Step 1 is to stop accruing new debt. That may mean that you need to stop using your cards except when absolutely necessary.
Step 2 is to start paying more than the minimum payment on the card with the highest interest rate.
Step 3 is to develop a serious plan for whittling down your debt.
Take a look at your life insurance: Are you still carrying life insurance even though you no longer have any dependents? You might consider converting to a fully paid-up policy or dropping your insurance altogether. On the other hand, if you've got children at home or debts that your spouse would find difficult to repay, you may need to increase your coverage by adding a term policy.
Plan your giving: If you own appreciated securities in a taxable account, they're the ideal currency for making charitable contributions. You get a full deduction and you avoid paying capital gains tax. Or, if you're 70 ½ or older and have an IRA, you can make direct gifts from your IRA to charity and never pay income tax on the money. You don't get a deduction either, but this still can be a great tool, especially for those who don't itemize on their returns.
Make your wishes known: Check to see that you have the basic estate planning documents and that they are up to date. You need a will, durable power of attorney, health care power of attorney and a living will. Having these in place will make it far more likely that your last wishes will be carried out.
I hope 2011 will be a happy and prosperous new year for all of you!
Helen Huntley is former St. Petersburg Times personal finance editor and currently a fee-only financial adviser with Holifield Huntley Financial Advisers in St. Petersburg (holifieldhuntley.com).