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Do your New Year’s Resolutions include “losing weight” and “getting more exercise”? Do they also include “better financial health?” They should! Getting a handle on financial health can be challenging, however.. Here are 2 things to consider:
1. Join my free January workshop to review steps toward financial health. This workshop will be held on Wednesday, January 25 at 7:30 pm at the Berkeley Heights Public Library.
2. Decide if you can get through these “financial health” steps on your own (a minority of folks) or if you need professional support.
Most folks can’t necessarily diagnose and treat their own medical conditions – and the same applies to financial planning.
Here’s an outline of the 12 Step Approach to Financial Health in 2012:
Step 1 (January): “Paper Chase”
• Create neat, organized files for your insurance, estate planning documents (if you have them), investments (after-tax and tax-deferred), etc.
Step 2 (February): “Location, Location, Location”
• Consolidate your brokerage accounts (12 is not better than 2).
• Consolidate investment accounts by identifying overlapping/redundant investments. I’ll review some resources (e.g. www.morningstar.com) to help in this area.
Step 3 (March): “Follow the Money”
• Add up all monthly or annual income sources (earned income, Social Security/pensions, other income), then deduct all expenses
• Are you in the Red? Black? Did you include mandatory savings if you’re not yet retired?
Step 4 (April): “Outliving Assets?”
• Add up your assets (property, investments, collectibles)
• Add up your current and future liabilities (mortgages, credit card debt, future obligations [e.g. college, possible support to other family members])
• Do you know if your net worth is sufficient to generate decades of retirement?
Step 5 (May): “Be Credit-Worthy”
• Track your annual credit score
• Consolidate and pay down CC debt in a way that makes sense
Step 6 (June): “Be Tax Savvy”
• Minimize taxes on investments by holding more of some investments in tax-deferred accounts (e.g. real estate, some bonds, commodities)
• Tax harvest before each year end to offset investment gains
Step 7 (July): “Insurance Wrap-Up”
• Do you have the best policies (life, disability, long-term care)to cover what you need – but don’t cost an arm and a leg?
• Is your family adequately protected from the risk of your unexpected illness or death?
Step 8 (August): “Sound Retirement Investing”
• Understand and utilize your employer retirement plan
• Roll up and consolidate plans from old employers
• How to utilize your retirement plans before and during retirement
Step 9 (September): “Investment Smarts”
• Know the A, B and Cs of mutual fund investing (different types of commissions)
• Retain more of your hard-earned money by paying a broker less (no more A, B and C charges!)
• Understand simply portfolio diversification techniques
Step 10 (October): “Estate Planning”
• What are the essential estate documents you need?
• How often should your estate documents be revised?
Step 11 (November): “Reality Check List”
• Has your financial health improved by taking these steps? Or did you fall off the wagon half-way through?
Step 12 (December): “Putting It All Together”
• Match realistic expectations with results
• Can you go it alone or do you need professional help? How do you find the right advisor for you?
Realistically, the majority of people cannot execute these steps alone. Review this list and see if you fall into that majority group. If you do, consider work with a Fee-Only (no products sold) advisor who will guide you through these steps in an objective manner that doesn’t mix advice with product sales. The right Fee-Only planner will access the situation, provide solutions to close planning gaps and hold you accountable to execute necessary changes.
Copyright © 2012 by Eve Kaplan
