12 Important Financial Steps to Take in 2012
January 30, 2012By now, everyone has broken their New Year’s resolutions. Never fear, taking one financial action step each month is easy and you still have time to finish January’s step. Taken together these steps can have a tremendous impact on your finances in 2012.
January – Check your credit report. Like going to the doctor for your annual physical, it’s always a good idea to check your credit report once a year to see how you are doing. You can get a free copy of your credit report from all three credit reporting bureaus at www.annualcreditreport.com. You should look over each report carefully to make sure there is no unauthorized activity.
It was announced last week that Zappos had a major security breach and 24 million customers were compromised. I quickly double checked to see if I had an account with them (and I don’t). If you do or just to be safe, look for unauthorized activity on your credit cards – that could be a sign of identity theft. If you suspect someone is committing identity theft against you, you may add a fraud alert to your credit file through any one of the three reporting bureaus: www.experian.com, www.transunion.com or www.equifax.com. If you want to get your actual score, it isn’t that expensive. You can pay about $9 to one of the credit bureaus to get it or sign up for a credit monitoring service and your credit score comes with it.
February – Prepare a personal net worth statement. By this time, financial institutions will have sent out all of the year-end tax statements for 2011. With that information handy, compile a net worth statement to see where you stand financially. Subtract your liabilities (e.g. your mortgage, loans, credit card debt) from your assets to determine your net worth. Set goals for how much you would like to grow your wealth in 2012.
March – Open a Roth or Traditional IRA, or add to an existing one. You have until April 17th (you get a few extra days this year) to fund your IRA for 2011 (but you don’t have to wait until 3 pm on the last day) and you can already contribute for 2012. To make it even more effective, set up automatic contributions from your checking account. Also consider systematically investing in a mutual fund or brokerage account for wealth building outside of a retirement plan.
April – Review your cash management system. Getting a tax refund? Did you get one last year and it disappeared into thin air? Look over where your money is going to determine if your cash flow supports your goals and your values so you keep more of it this year. Determine where you can cut expenses that are unnecessary or aren’t bringing you the desired results. Rather than looking at only a week or a month’s worth of expenses, use a reasonable sample by averaging your expenses over three months to see where your money is going. If you don’t already do so, enroll on a cash tracking site such as mint.com or quicken.com to track your expenses and follow your spending targets.
May – Reduce your debts. Review your net worth statement and determine which debts you’d like to eliminate. Start with the one with the highest interest rate and use some of the money you found in April to pay extra on that debt until it is paid off completely. When it is paid off, take the whole amount you were paying and add it to the next debt (and so on) until they are paid off completely.
June – Have an important conversation with your parents. This Father’s Day, ask your Dad (and Mom) if they have their important paperwork in order and ask them to show you where it is in case you need to step in to help them during an emergency. If they have a financial power of attorney and a medical power of attorney, someone can make decisions for them if they are unable to. If these aren’t in order, it will be extremely difficult – much more difficult than having the conversation.
July – Do a retirement reality check. Check your contribution rate to your retirement plan. Are you saving at least 10% of your income or at minimum, up to any company match? Use a retirement calculator to determine if you are on track to retire using as much information as you can gather – your current savings deferral rate, your current balances in investments, any pension income and Social Security. If you aren’t contributing the maximum and want to ease into a higher savings percentage, set up your plan at work to automatically increase by 1% each year. Don’t have that feature at work? Simply send yourself an annual reminder on Outlook to make the increase every year!
August – Pack your lunch and save for college. A small investment here and there can make a big difference when saving for long-term goals. If you have a child or want to have one in the future, consider bringing your lunch to work three times a week (cost $3 for bagged lunch compared to $6.50) and save the difference in a 529 plan for 18 years at 7%—you’d have $17,779 in the college account. Not bad, especially if you like peanut butter sandwiches.
http://www.bankrate.com/calculators/savings/bring-lunch-savings-calculator.aspx
September – Spend time with the one you love. You don’t have to be married to become a millionaire, but in Thomas Stanley’s famous book The Millionaire Next Door, he cites 95% of the millionaires he interviewed are married. Linda Waite and Maggie Gallagher make the case for marriage in their book The Case for Marriage: Why Married People are Happier, Healthier, and Better off Financially. If you are married or have a significant other, spend some time this month making your relationship better.
October – Take care of yourself by reviewing your disability and long-term care. Who is going to take care of you if you are injured or really sick? A 45-year old has a 1-in-5 chance of being disabled for more than 3 months before they are 65. Check to see if you are covered in case of a disability or severe illness where you need around-the-clock care. Do you have long-term disability coverage or a group long-term care plan available at work? Review your coverage and sign up during next month’s open enrollment period.
November – Get your estate in order. If you don’t have a will or a trust, look into getting one. Don’t forget to include financial and medical powers of attorney in case you are ill and unable to make decisions for yourself. If you have your documents in order, review them, and when your family is all gathered around for Thanksgiving, review them with your family. Let your executors know where your documents are located and make a copy for them.
December – Celebrate!
Look back over what you have accomplished for 2012 and pat yourself on the back. There will be 8,760 hours in 2012 – many of them will be spent sleeping, commuting, standing in line, and in meetings. Just think how you can maximize a few hours each month during the year so you end the year with a plan for emergencies, a net worth statement, an insurance review, a retirement readiness plan, an IRA or investment savings account, your parents’ paperwork in order (what a relief), and to top it off, a date with your mate. Those are hours well spent.