2. Diversify your portfolio
Determining a proper mix of investments depends entirely on how conservative or aggressive you are and, especially, how close you are to retirement.
"We are all unique and we need to make decisions based on our own circumstance," says Joel Ticknor, a certified financial planner in Reston, Va. "But by diversifying your portfolio as widely as possible, it's the best way of dealing with the unknown."
If you're not certain how to allocate your money between stocks, bonds, and cash, many fund companies and retirement-plan sponsors have online questionnaires to help determine those ratios. Or try the Security Industry Association's investor website ( www.siainvestor.org ).
Once you determine the proper mix, you can take a closer look at your investments. For those who rely on mutual funds, the first of the year is an appropriate time to do this because funds will be reporting their year-end results.
For tax reasons, make changes to your holdings after Jan. 1. Do so before the end of the year and you risk having to pay capital-gains taxes on distributions a fund made earlier in the year. Shareholders of record at the end of the year can still be liable for those taxes. But this doesn't apply to retirement accounts, where taxes are deferred until you withdraw money.
3. Refinance your mortgage
This is the third consecutive year that most financial-resolution lists have included this advice. Mortgage rates, although up from record lows in June, remain at historically low levels. Refinancing a 30-year mortgage in which you're paying above 6.5 percent could save you a few hundred dollars per month and thousands of dollars over the course of the loan. The Federal Reserve has hinted that rates will remain low for the foreseeable future - at least until the threat of recession recedes and there is steady job growth in the US economy.
"Interest rates should remain unchanged through the middle of next year, but they can't remain this low forever," says Kevin McCormally, editorial director of Kiplinger's Personal Finance Magazine. "Homeowners should take advantage of this great opportunity to refinance as it may not come around again for a long time."
Refinancing is not always a good idea, however. Remember, refinancing will probably extend the term of your loan. So if you are 25 years into a 30-year mortgage, refinancing makes little sense. Also, if you plan to sell your home within two years, the closing costs associated with refinancing may not make the move worthwhile.
4. Time your car purchases
Many financial planners will tell you: Never buy a depreciating asset. And practically nothing depreciates faster than a new car. But if a new set of wheels beckons anyway, time your purchase to get the best deal.
"Car dealers always want to cut a deal at the end of the month," says Annette Simon, a financial planner in Bethesda, Md. "They need to meet monthly quotas and this puts the consumer in the driver's seat - so to speak"
Good deals can also be had toward the end of summer, when most dealers want to unload last year's models.
For most people, though, a used car makes more sense. Most new car and truck dealerships offer used models that not only look and drive new, but are considerably less expensive and come with impressive warranties. "I tell my clients, 'Buy a used car and keep it forever,' " says Mr. Edelman, the financial planner.
Once again, buying at the end of the month may save you some money. Even if you buy a used car from a private seller, do your homework. Have the car inspected and compare the price against the Kelley Blue Book value (online at www.kbb.com ).
5. Update your insurance
When a rash of hurricanes hit the mid-Atlantic coast, many homeowners there didn't check their insurance until after the storm - too late to do anything about increasing coverage. Don't wait for a disaster, experts say. Review your coverage now.
"Most homeowners are underinsured," says Mr. Ambrose. "Although their home's value may have increased handsomely over the past five years, many times homeowners have not increased the value of homeowners policies."
People need to consider the replacement cost of objects - including their homes - when updating their policies. In addition, hundreds of dollars can be saved by increasing the deductible.
People should also examine their life insurance policies. Financial situations can change over the course of a few years and as a result, people can be underinsured if their net worth has risen considerably. "People should also look at updating beneficiary information," says Mr. Ticknor. "If you just got remarried, make sure the new wife is the beneficiary of your policy."
As far as auto insurance, the best deal is often just a click away. Most large insurance companies can tell you either over the phone or online, if they can provide you with a better rate for car insurance. As with home insurance, raising the deductible could save you hundreds of dollars per year.
Finally, look into disability insurance. As financial situations change and monthly expenses increase, having adequate long-term disability insurance can make sense should something catastrophic occur.
6. Reduce credit-card debt
This is another perennial resolution - and with good reason. It's one of the best ways to put your financial house in order for the new year.
The average American household with at least one credit card has an unpaid balance of $8,940, according to the most recent figures available from CardWeb.com Inc., a leading publisher of credit- and debit-card information.
"Paying 12, 13, or 18 percent on debt that you can't write off on your taxes makes absolutely no sense," says Mr. McCormally of Kiplinger's. "Besides trying to reduce or hopefully eliminate the credit-card debt, it might also make a lot of sense to consolidate your debt with a low-interest credit card."
Even better is to transfer the balance to a home-equity loan. You'll still have the debt, but the interest is tax deductible.
As you look to reduce such debt, pay off credit cards that have the highest rate of interest, credit counselors advise. After the first account has been paid in full, close it out in writing and return the credit card to the issuer. Ask the issuer to note in your credit file that the account was "closed by consumer," and then request a copy of your credit report to make sure it happened.
To see your credit report, contact any of the major three credit-reporting agencies: Equifax ( www.equifax.com ), Experian ( www.experian.com ), or TransUnion ( www.transunion.com) . Most consumer advocates recommend you check your credit report once a year to make sure it is accurate.
7. Take advantage of new tax breaks
The majority of this year's tax-law changes provided a boost to retirement savers. For example, starting in 2004, 401(k) participants can contribute up to $13,000 to their retirement nest eggs - an increase of $1,000 compared with 2003.
"With the new laws and regulations in place, people will find that they have more money in their pockets to save, and the government will take a smaller bite out of whatever gains they earn," says Mark Mullin, CEO of Diversified Investment Advisors, an investment-advisory company specializing in retirement plans. "The scenario is perfect for giving their 401(k) accounts a much-needed boost."
And take advantage of the recent tax cuts to sock more money away. By reducing the four highest income-tax brackets to 25 percent, 28 percent, 33 percent, and 35 percent, retroactive to Jan. 1, 2003, Congress effectively gave taxpayers more money. Although the 10 percent and 15 percent brackets remain unchanged, their income limits were expanded.
Long-term capital-gains rates also fell from 20 percent to 15 percent, and to 5 percent for low-income investors in certain situations.
Congress also passed legislation aimed at helping working families. For instance, the dependent-child tax credit for people with children age 17 or younger was raised to $1,000 per child (from $600), subject to income limitations. That's another savings help, and the standard deduction for married couples filing jointly was raised to $9,500.
"These opportunities are great for investors, but they should recognize that the clock is running," says Mr. Mullin. "Contribution incentives and tax-law changes are not going to last forever. In fact, most of them expire within the next five years. So retirement investors should take advantage of all the benefits now."
Real Estate Tip: First impression woos buyers
What is the first thing to do to prepare a home for sale?
Boost its curb appeal. The way your house is viewed from the street, or its curb appeal, is very important. First impressions are lasting. A front gate hanging on a hinge or peeling paint can cause buyers to wonder what else is wrong with the home. You want to convey the impression that your home is well maintained. Other things that will help you sell include deep-cleaning the house, washing windows inside and out, and fixing defects such as broken bathroom tiles or peeling window paint. Plan to keep your home this way during the marketing period. Hire a cleaning person or service to come once a week if you don't have time to clean. Contract a staging decorator to help you set up your home for sale. Bring in fresh flowers. If the home is vacant, you may want to rent furniture to avoid showing empty rooms.
Sources
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