The events of the past two years have affected many financial plans. Unemployment is above 10%, and the stock market is still off the highs reached in October 2007. Although these issues are outside your control, there are many things you can focus on that have a meaningful impact on your life.
Before the ball drops in Times Square, here are a few things I would suggest reviewing in your situation:
Asset Allocation - What is the overall mix of stocks & bonds in your portfolio? Is it a mix you are comfortable with? For many people, the wild swings in values over the past two years has caused financial paralysis.
Maybe you haven’t opened a statement in months!
Even if your allocation was appropriate 6 months ago, or 2 years ago, the gains and losses experienced over time can dramatically alter your overall allocation. Take the time to review your investments. Many statements will show a pie graph depicting your current mix of stocks, bonds, and cash. Most 401k statements do as well. Use these tools to adjust your investments back to a mix you are comfortable with.
Tax withholding – if I asked you to give me $100 out of every paycheck next year, and then gave it back to you 3 or 4 months into 2011, would that sound like a good deal? That is exactly what many people are doing. By over paying taxes on each paycheck, you are, in effect, giving an interest free loan to the government. If you routinely receive thousands of dollars in tax refunds annually, ask your HR department for a new W-4 form to adjust your withholding.
Retirement contribution rate – January can be a great time to adjust your retirement contributions higher. Ideally, if you are able to contribute on a percentage basis, you can slowly increase your level of contributions 1 percent at a time. For most, incremental increases of 1% won’t affect your day to day cash flow needs.
If you make $50,000 & are paid twice a month, this will increase your contributions by little more than $20 per pay. Assuming a 7% return over a 30 year career, this additional $20 adds up to an extra $49,000!
I will be turning in my form on Wednesday to increase my contributions from 11% to 12%.
Beneficiary designations - Many accounts you own come with the ability to name specific beneficiaries to receive the assets when you die. These include
- 401k’s
- IRA’s
- Roth IRA’s
- Life Insurance
- Taxable accounts with a transfer on death designation
Unfortunately, many people name beneficiaries when the account is opened, and fail to revisit their selections when life changes. Events like marriage, as well as divorce, the birth of a child, and other major life events should trigger a review of your designations. A brief amount of time spent checking your accounts will ensure your assets are structured properly.
While there are many things you could be reviewing at the end of a year, these are four key areas to address, and all are within your control. I have found that by focusing on the things you can control, it makes managing your total financial situation, that much easier.
photo’s by C. Young Photography, alancleaver_2000, & normanack
