Yearly Financial Tuneup
This is almost a
duplicate of what I posted last year. It's still a great article, and the ideas
are still worthwhile. My additional comments for this year are italicized.
The
following list has a couple personal recommendations. Other than that, it comes
directly from the New York Times site.
A.
If you go to church check your tithing amount.
If
you aren't giving ten percent, bump it up a little bit to get closer to the ten
percent goal. You should know all the good your church does with the money. If
you don't, think about a different church! (~ 5 minutes)
If you don't
believe in a personal God, then you're probably on the wrong blog post, but you
might believe in karma. Give back to society with at least some of your money.
B.
Automate as many bills as you can.
My
bank lets me set up automatic payments (note #19 below). Also, I am able to set
up most of my accounts so they charge automatically against my charge card,
which gives me extra rewards every time I pay my electric bill! The trick is -
and this is important! - pay the charge
card off completely every month. If
you can't do that, you're living outside your means. Debt is an enemy that will
eat you alive.
C.
Sell one old thing on eBay or craigslist.
I
know. This one sounds silly, and doesn't even sound like a Financial Check-up
item, but it's the same as converting something useless into cash. We do it all
the time in the games we play. A little extra cash doesn't hurt.
Just
do one item. Just one. Every little bit helps.
1.
Save 1% more from your paycheck (~5
minutes)
This
really works. Even if you can't do one percent, consider a little bit more than
you do now. Try to at least match your
employer's matching program if you have one; I didn't when I was young -
because I was stupid. I lost a lot of money because of that. Don't make the
same mistake I did.
Go above the
matching program if you can. Anything you can put into your 401K now can
benefit you in the future, and it compounds.
2.
Reconsider your investments (~30
minutes)
Where
are you investing your money? It's even
harder now that it was in previous years. Finding a good rate of return on your
money is tedious. I'm still looking. If you have good ideas, please help
everyone and comment. Make sure you're putting aside for retirement. It
sneaks up on you (or eludes you). Trust me on that one. I'm sorry I didn't
contribute more when I was younger.
3.
Rebalance your investments (~15
minutes, but took me an hour)
It's
good to analyze and rebalance these on a yearly basis. I do this every year. My
retirement 401k lets me move money between different funds. I analyze the fund
performance for the year and make changes. Does it make a difference? I don't
know, but it makes me feel better.
4.
Find a better bank (~2
hours)
In
these years of less than one percent interest, maybe it feels like this isn't
worth it. I still check around, though, looking for the better interest rates. Capital One bought ING, and I still have
money there, but many of my local banks do almost as well.
5.
Make an extra mortgage payment (~5
minutes)
If
you have a mortgage, this will help pay it off early and save a lot of money in
the process. It's worth it if you can afford it. Your entire financial world changes when you pay off your home.
6.
Open a home equity line of credit (~a
few hours)
Okay,
I don't see the need for this one, but they make the point that you may not be
able to open a line of credit if you lose your job. My clever brother has a line of credit and he uses the low-interest of
that to fund college for my nieces.
7.
Increase your student loan payment (~5
minutes)
Obviously,
only if you have student loans! However, make sure you're not paying off low
interest loans with money that could be better invested elsewhere.
8.
Seek a lower-interest credit card (~10
minutes)
PLEASE
don't just get another card. If
possible pay off your (only) card
every month, and this isn't an issue. However, if you are carrying a balance, ask
for a better rate from your current card or seek alternatives elsewhere (but
watch out for balance transfer fees). Remember:
Debt is a bad habit to get into.
9.
Set an automated payment toward your debt (~10 minutes)
They
say to set your card for automatic minimum payments from your bank, but
obviously I think it should be the entire balance. Making minimum payments is
not financially healthy. BUT automatic payments at least avoid the late fees,
which will sink your finances in a hurry, so set those up.
10.
Read the rules on your rewards card (~15
minutes)
Make
sure you're getting all you can get from your rewards. Even if you read them
before, read them again since they might have changed.
11.
Cash in your rewards (~10
minutes)
Card
rewards only lose value over time, since the programs rarely get more generous.
Earn them and burn them as fast as you can. I don't do this because I like to
have a pool of points for emergency plane tickets, but I'd agree it is a good
idea. I used my points last year for
plane tickets I needed in February for my Dad's funeral. Now we cash them into
pre-paid cards for local stores.
12.
Find a better-earning rewards card (~2
hours)
Seek
out help from fatwallet.com and flyertalk.com or try the recommendation tool at
creditcardtuneup.com.
13.
Check your credit reports for free (~20
minutes)
Check
one of your three major credit bureaus reports annualcreditreport.com. If you
rotate them you can get a different one each year.
14.
Consider a financial planner (~1
hour)
Find
planners at napfa.com or garrettplanning.com. I haven't done this, but for some
people it's a good idea. For others, you can get a lot of benefit from using
the resources at Crown Financial Ministries
(founded by Larry Burkett). This can be very helpful if you have debt you need
to get rid of.
15.
Pare part of your budget (~2
hours)
If
you can spend the time and energy to do a full budget analysis, that's the best
thing. If you can't (and most of us can't) then identify the one or two problem
areas for excess spending and consciously cut those back. They say a site like
mint.com can help, but so can pencil and paper or a spreadsheet.
16.
Read your tax return (~30
minutes)
If
you do your own taxes, you must do
this. If you have an accountant, check through the return anyway. Talk it over
with your accountant. It's worth your time to know what tax breaks you get (and
miss). My tax guy missed almost $1000 in
my giving last year.
17.
Enroll in a flexible spending account (~15
minutes)
Especially
in today's economy, use pre-tax money for medical, public transportation or
child expenses when you can. We're using
the pre-tax medical. Be careful you don't estimate too high, though; you lose
the money you don't spend.
18.
Reread your will (~30
minutes or more)
If
you have one, make sure it still does what you want it to. If you don't have a
will, go make one. Check retirement account and life insurance also.
19.
Automate your giving (~5
minutes per group)
If
you donate money on a regular basis, go ahead and automate it. We do, just
because we want less things to remember every month.
20.
Walk a loved one through your affairs (~30
minutes or more)
Make
sure someone else knows how to find and handle your finances if you die. Write
it down so they don't forget. I still need to do this, actually. This
involves having the passwords to all our accounts written down and stored in a
safe place (like our safe deposit box).
21.
Ask your cable company for a better deal (~30 minutes or more)
In
this age of cut-throat services, check your cable costs. Negotiate for better
deals or more channels or both. Or change services. We're still trying to figure out how to dump cable entirely.
22.
Ask your wireless company for a better deal (~30 minutes or more)
In
the same way, check your wireless costs. We
changed services last year when our contract was up, saving over $60/month for
both phones.
23.
Ask your landline company for a better deal (~30 minutes or more)
Getting
redundant, isn't it? It's still worth your time to check with your phone
company or even consider dropping them entirely for a cheaper VOIP line. We're working on the MagicJack setup right
now. Watch out for the Vonage sale though; they have an inexpensive introductory monthly fee, then it jumps
up.
24.
Spend your gift cards (~20
minutes)
I'm
so guilty of this one. I have expired gift cards or lose them and that's just
money down the drain. This is the only one where they recommend spending as a good thing!
25.
Check your life insurance coverage (~15
minutes)
You
should do this every year as a yearly financial maintenance item.
26.
Buy a disability policy (~a
few hours)
I
have one of these, and also make sure it will pay expenses if I'm badly hurt
for a few years. It's worth the time and trouble to do the research and get the
policy.
27.
Consider renter's insurance (~a
few hours)
Obviously
this is for renters, but it's a good idea. Check it out.
28.
Raise your auto and home insurance deductibles (~30 minutes)
Only
raise your deductibles if you can afford it, but it does reduce the premium
costs.
29.
Do a home inventory (~1
hour or more)
I'll
just quote NYT directly for this one "Tour your home with a video camera
and record everything you’d want an insurance company to replace. Put a copy of
the video someplace safe other than a computer, in case of fire or a hard drive
crash. And add up the replacement costs for all of those items to make sure you
have enough insurance." It's a good idea. I still have to do it.
30.
Read your home insurance policy (~30
minutes)
You
should do this before you change your deductibles and after you do your
inventory. I read mine, but I needed some
strong coffee to get through the entire thing.
31.
Shop for new home and auto policies (~a
few hours)
It's
always worth a few hours to see if you can get better insurance deals. Do this
before you change your deductibles though, just to be efficient.
Nobody cares about your finances as much as you do. Do what you
can to make your finances better this year.
This had a good deal of advice I've already heard or knew about on it, a small bit that I was not so sure about (investing money before paying off loans feels very scary to me), and a few that I had not thought of (looking for different banks and rebalancing investments are important yearly practices that I haven't had to deal with much in life yet.) Thanks for posting, I enjoyed your insights.
ReplyDeleteYou asked for help picking investment strategies for good rates of return, and while I'm no expert, and may not know as much as even you do, I have done fairly well in the past two years. $1000 became $1278 over exactly one year, and then $1707 (I deposited $430 in the account) became $1790 over this (very difficult) 9 weeks. I use Scottrade for trading and a couple of strategies for picking mutual funds, which I prefer because I like the idea of never losing all of my money on stocks. When you have as little money as I haven diversification is silly, but obviously it is important once you have any sizable amount. As for actually picking funds, I narrow them down like this:
-Eliminate any that Scottrade does not carry. Obviously this is mandatory if you are low-income and with only one trading company, but otherwise doesn't matter as much.
ReplyDelete-I choose funds with no load, available to new investors, and with no trading cost. This allows me to make trading decisions without concern for what percentage of my investment $7 is ($14 to buy and sell means I have to make fully an extra one percent, and I am not prepared for that gamble.)
-Obviously funds not open to new investors are useless if you are a new investor.
-I like small-growth and small-value funds. These shoot for going just over the market value of an index; a fine goal for a retirement fund.
Once I've narrowed that down, I look for something that looks like a better buy than its Morningstar rating would indicate, or something that has taken a recent and unexpected dip. High past performance and poor recent performance or 10, 5, 2, and 1 year scores of 10% or more are good ways to narrow down funds until you have a manageable amount to watch for 2-3 months. If you track your funds every day (and many of them only update once per day,) you can start to see "oh, tomorrow this will bounce back", or "we had a big day without a preceding bad day, that means I should expect a bad day tomorrow." By following the index your fund follows and your fund, you can start to make predictions.
For instance, in early December, I thought my fund looked a little inflated, so I sold. In late December, I bought, actually very near the bottom of the dip. I was not *actually* able to buy so close to the bottom of the dip, because Scottrade took three or four days to buy the fund, and bought at the later day's value, which was still good, but not nearly as good. I'm a bit disappointed, but I think this delay may be built in so that mutual funds can avoid day-traders and stay more stable and (for my fund,) representative of their index. I will have to talk to the people at Scottrade, but regardless, I was able to sell on the high side and buy on the low side without much knowledge or time investment simply by watching what was happening and getting an idea of value. By the same token, watch the three, five, or ten funds (or bonds, stocks, commodities, or whatever else you're looking at, if you're looking to diversify) regularly for a couple of months, then make a decision when one of them is at a price you just can't say no to. Most importantly, no matter how far you drop, don't sell mutual funds at a loss, ESPECIALLY index funds. They will almost certainly come back up. at the end of 2012, I had $900 in mutual funds because the fund I had bought three months previous had lost so much money. They gave me dividends at that low price, bringing me almost back up to my input of $1000, and then the price rose back up once the market got over itself, and I made $250 or so by October. The fund I am in is WSCYX if you care.
tl;dr: I liked your blog post. My investment strategy has done over 20%/yr for 1.5 years, and is as follows>1. Pick a few things you want to invest in. 2. Watch them every day for 2-4 months. 3. Strike when the price is so low you can't stand it. 4. Don't freak out when it goes lower. 5. ???. 6. Profit. 7. If you have the means and time to pay attention to more investments, you should be more diversified. 8. Once you have enough means, paying someone like-minded to pay attention for you may be safer than not diversifying. 9. Be SAFE, and content with 10%/yr increases, rather than looking for 50% or higher ones that are crazy. Recognize lotto tickets for what they are.
Apologies for being so long! I was very interested in what you had to say. Will read more in the future.
Firstly, thanks for reading my blog post. I do have a few financial ones in here, in the hopes that my children will be able to use the information. Like this post.
ReplyDeleteSecondly, I didn't really come up with most of these items on the list. The NYT had an excellent article which I essentially recycle every year so people don't lose it.
Finally, thank you for the wonderful additional comments on how to invest well. I plan to add a chapter on investing in one of my future books, but everything you say is spot on! This would make a very good independent post! If you have a blog, you should post it. If you'd like to guest post here, that would be great - drop me a note at vbbernhardt@gmail.com. We'll work something out.
Debt is a huge issue for most young people, and (sadly) for many older people as well. I don't really recommend investing before paying off debts, EXCEPT if your company has a matching program for your 401K (or other company plan). Then you should invest and get the matching funds, unless the interest on your debt is higher than the match you get. Most companies match at 25-50% though, so I hope your debt interest isn't that high.
I am against debt. I drowned in debt when I was younger, cause by buying things I could have lived without, but thought I needed. When I was a young man just starting work, an older gentleman living next door to me said "Pay off your house as soon as you can. The entire world changes then." He was right.