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Improve your financial well-being in just one step a month

THE BALTIMORE SUN

A PERENNIAL New Year's resolution is to get finances in shape.

But finances - which include taxes, credit cards, estate planning and investing - can be overwhelming. It's not surprising that financial resolve often quickly falls to the wayside, along with popular resolutions to exercise and lose weight.

That doesn't have to be the case.

"You don't have to do it all at once," advised Harold Evensky, a financial planner in Coral Gables, Fla.

You can start with small steps, Evensky said. "Any beginning is a good beginning," he said.

So, here are a dozen simple financial steps - one for each month - that experts say can put you in better financial shape by year-end:

January: You acquire a 401(k), a couple of individual retirement accounts and some individual stocks and mutual funds, and pretty soon your portfolio is stuffed with all sorts of things.

"No one knows what they've got," said Mari Adam, a financial planner in Boca Raton, Fla.

Take this month to look at your holdings, and figure your asset allocation, or what percentage of your portfolio is in stocks, bonds and cash, Adam suggested. If you've never done this, you may find that your allocation is too aggressive or too conservative to meet your goals, and needs adjusting.

Those more ambitious can dig deeper and look at their funds' holdings to see if they have too much in a single sector or investing style, Adam said.

An easy way to do that is through Morningstar's online portfolio analyzer, available for free from T. Rowe Price Associates at www.troweprice.com.

February: The limit on how much can be salted away in a 401(k) goes up this year by $1,000 to $13,000. Workers 50 and older can contribute an extra $3,000, for a total of $16,000.

Check with your employer to make sure you have increased your contributions, experts said. If the new limits seem too steep, try increasing your contributions by 1 percentage point, said Don Blandin, president of the American Savings Education Council.

And, of course, if you're not participating in your employer's plan, sign up.

March: With the tax deadline nearing, it's a good time to organize your financial records. "Everybody has messy files," said J. Michael Martin, a financial planner in Columbia.

How long do you keep tax records? The Internal Revenue Service generally audits returns within three years of filing, although it can go back further if there's a suspicion of fraud or under-reported income, Martin said. "Keep things seven years and you should be home free," Martin said.

April: Boost retirement savings. You have until April 15 to make a contribution to an IRA for 2003.

May: If you get hefty tax refunds year after year, it's time to adjust your Form W-4, which determines the amount of money your employer takes out each paycheck for taxes. This will put more money in your pocket throughout the year, instead of Uncle Sam's. The IRS' Web site at www.irs.gov features a calculator to figure the right withholding for you.

June: Many people don't know if they are saving too much for retirement, too little or are right on target because they never made the calculation.

Figure your savings goal by using one of the many online retirement calculators, such as American Savings Education Council's Ballpark Estimate at www.asec.org.

July: Got card debt? Look for a lower credit card rate so you can pay off balances faster, said Gerri Detweiler, author of The Ultimate Credit Handbook. Check out www.debtsmart.com for advice on lowering your interest rate, she said.

No debt? Then look for a card that offers rewards. Generally, if annual charges are less than $10,000, look for a card that offers perks with no annual fee, Detweiler said. If you charge more than that, then it may be worth the annual fee to earn frequent flier miles, she said.

August: Review property and casualty coverage, which includes car, homeowner's and umbrella policies.

Even if your homeowner's policy provides replacement coverage, you can easily be underinsured if housing and labor costs have skyrocketed in your area or you've done extensive remodeling, experts said.

Save on premiums by increasing low deductibles on auto policies. Drivers usually don't make small claims anyway because they push up premiums, experts said.

Consider an umbrella policy if you don't have one. It provides coverage above and beyond the other two policies, say, in case you're sued after an auto accident, experts said.

September: Review estate documents to see if they're up to date, said Thomas Grzymala, a financial planner in Alexandria, Va. This year, for example, the amount an individual can shield from estate taxes rises $500,000 to $1.5 million, which may require changes in your documents or planning, he said.

Also, be sure beneficiaries and guardians are still correct, he said.

Estate documents - will, living will, financial and health care powers of attorney - aren't just for the rich. If you don't have these papers, get started in drawing them up, experts said.

October: Get copies of your credit report, advised Barry Glassman, a financial planner in McLean, Va.

They can reveal if you're a victim of identity theft, or remind you of open credit cards that are unused but can negatively affect your credit score, Glassman said. This score is used by lenders and others to set credit terms offered to you.

November: Sign up at work for a flexible spending account for next year and reduce your taxes, advised Joanne Hamilton, an educator with Maryland Cooperative Extension in Anne Arundel County.

Workers' money goes into the account pre-tax, and they can use the cash to pay medical expenses without ever having to pay taxes on it. "It's like the federal government is helping you pay your health care costs," Hamilton said. It also lowers adjusted gross income, which could make you eligible for other income-based tax deductions.

December: Donate to charity any clothes that you haven't worn in the past two years, Glassman said. Your closets will be cleaner and you get a tax deduction on the donation.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose @baltsun.com.

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