With the New Year just around the corner, now is the perfect time for a financial checkup. Just like changing the batteries in your smoke detectors when the time changes, January 1 is the perfect time to evaluate your finances. So here are seven financial checkups that will help put you on the right track in 2011.
1. Rebalance your investments: With the hustle and bustle of life, it’s easy to forget about your 401(k), IRA, and other investments. But as some investments go up and others go down, your well-tuned asset allocation slowly morphs into something other than what you planned. So take a few minutes to evaluate your investments and make changes as necessary to stick to your investment plan.
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2. Rethink your savings account: Interest rates on FDIC-insured savings accounts are at an all time low. Even high-yield savings account rates generally pay under 1 percent. Because of these low rates, it’s worth considering alternatives such as long-term CDs, paying off high interest debt, or even a bond mutual fund. A bond fund has risks that an FDIC-insured savings account does not, but given the prevailing interest rates, it just may be a risk worth taking.
3. Look for cheaper car insurance: Once a year it’s worth making sure you are getting the best deal you can on car insurance. With online comparison sites, you can get quotes from multiple insurance companies in minutes. And if you find cheaper insurance, your current insurance company may just be willing to match the quote.
4. Set financial goals for 2011: While there is no limit to the goals you can set, three financial goals are worth considering: 1) a savings goal, 2) spending goal, and 3) debt repayment goal. Each of these is important to sound financial management, and it’s worth taking the time now to think about what you want to accomplish for each goal in 2011. For example, two of our goals in 2011 are to pay off our home equity line of credit and to contribute the maximum amount to our retirement accounts. The key, however, is to include an action plan for each goal.
5. Reduce the cost of internet, cable, and phone service: Add up what you pay for TV, phone and internet service, and the result may be shocking. With two teenagers, we pay a small fortune for cell phone service alone. Add in cable and high-speed internet, and the total monthly cost is equivalent to a car payment. As a result, it’s worth taking a few minutes to comparison shop for better deals. For example, we will be saving about $100 a month on cell phones by switching carriers. And after writing a review of Amazon Wireless, I took my own advice and saved several hundred dollars on the new phones. The savings are out there; you just need to spend a few minutes to find them.
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6. Check your credit report: At least once a year you should check your credit report for errors. You can get your report for free from annualcreditreport.com. It takes just a few minutes to download your report and to review it for accuracy. Given the importance of your credit history, it will be time well spent. And if you want your credit score, it’s easy to get your FICO score for free.
7. Follow your dreams: As important as our finances are, they are a means to an end. The ultimate goal is about how we want to live our lives, not how much money we have in the bank. So what are your dreams? And just as important, how will you move closer to your dreams in 2011? So turn off the TV, unplug from Facebook and e-mail, and give some meaningful thought about how you will move closer to your life’s purpose in 2011.