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The Yearly Review
The New Year is a traditional time to take a look at the year gone by and resolve to make changes to help ensure that the next year will be even better. You might resolve to eat better, work out more, quit smoking or be nicer to your sister.
But the turning of the calendar also can be a good time to look at your financial life and resolve to make changes there, too. Review areas such as:
Your income. Were you satisfied with the amount of money you made last year? If not, what can you do about it? Do you need to be more aggressive in asking for a promotion? Or do you need to look for another job, or maybe another career path? If you think you need a change, what kinds of things can you do to position yourself for that change?
Your outgo. Did you spend too much, and did your spending leave you with too little in savings or too much debt? If you see more money going out than coming in, where can you cut? And how much do you need to cut in order to get back to a comfortable spending level?
Your debt. Look at both your long-term debt such as your mortgage or car loans, and your short-term debt such as credit cards. Are you on track to pay off your long-term debt, and should you consider refinancing your mortgage or taking out a home equity line to pay off other debt? This is a good time to check your credit reports. You can get a free copy from each of the three major credit reporting bureaus at www.annualcreditreport.com. You have to pay for your credit score, but it might be worth it, especially if you are considering a major purchase.
Your savings. You should have some savings so that you don’t have to sell non-liquid assets in the case of an emergency or other financial need. Do you have enough in savings?
Your investments. What kind of returns did you get on your investments last year, and are you happy with that return? What kind of risk do your investments carry, and are you comfortable carrying that risk? Are your asset allocations where you want them to be?
Your insurance. Look at your life, property and liability insurance, and make sure that you have enough coverage to protect yourself and the people who rely on you. This is especially important if your situation has changed. If you moved from a big house to a smaller condo, for example, or if you got divorced or had a grandchild, that can have a major impact on your insurance needs.
Your beneficiaries. Your life insurance as well as your retirement accounts require you to name a beneficiary. Check your beneficiaries, and make sure they are in sync with your life. For example, if you recently divorced, should you remove your ex-spouse as your beneficiary? Should you add a new grandchild?
Your taxes. Should you or can you do anything to ease your tax burden? For example, are you taking advantage of any opportunities for tax-deferred retirement savings? Can you take advantage of any tax credits or deductions for things like green energy? Should you set up trusts for your spouse, children or grandchildren?
Certainly no one knows exactly what the new year will bring. But if you take a few minutes to give yourself a financial review, you can help improve the chances that your new year will not hold any unpleasant surprises.