7 Financial Steps to Start the New Year

Welcome to 2011 or should I say Happy New Year!  While most people this time of year set goals for getting into better physical shape, very few focus on steps they could take to get into better financial shape.  Here are 7 steps you can take today to get your financial new year off to a great start:

1.) 2011 IRA Contribution – why wait until the end of the year to make a financial contribution that can grow either tax-deferred or tax-free?  Many expect this year to be a good one in the markets and so why not take advantage of this potential early growth?  You can make a 2011 contribution of $5,000 today into your IRA (or Roth IRA if you qualify) and see your assets grow over the next 3 months if we do indeed have a strong first quarter.

2.) 2010 IRA Contribution – if you forgot to make a contribution last year, you have until April 15, 2011 to make up for this.  Same rules and restrictions apply but you could add an additional $5,000 into you IRA on top of what you’ve already contributed for this year.

3.) Reallocate – now that 2010 is gone, take a look at your portfolio and see how everything is allocated.  Are you overweight in some areas and underweight in others?  Now may be a good time to sell the things in your portfolio that have done well to bring them back into equilibrium with your allocation guidelines.  It may also be a very good time to take the proceeds and put them into the investments that you still like but did not do as well.  If you have come to the conclusion that these poorly performing investments should be sold outright, make the sells and invest in other things that you have a strong belief in for 2011.

4.) Update Beneficiary Designations – do all your accounts have updated beneficiary information?  Did a family member, loved one, friend, or relative move on last year?  Perhaps it is now time to name a different beneficiary in their place?  It is critical to make sure your accounts are all designated with up to date and accurate beneficiaries.  This not only affects qualified accounts like your 401(k) and individual retirement accounts but can also include TOD or Transfer on Death designations as well as all insurance you own.

5.) Gain/Loss Reports – now is a good time to collect (or ask your advisor) for your 2010 investment tax reports.  These would include reports that show all interest/dividend income you earned from your investments in 2010 as well as all capital gains (or losses) you incurred.  You may have to wait for a month or two to get this information from your custodian (where your assets are held) but your advisor should be able to produce their own internal reports which will give you a good approximation.  Send this information over to your CPA as soon as possible so they will know what these numbers are going to be.  This may help your CPA do a more effective job in tax planning going forward.

6.) Budget – now that 2010 is over, do you know how much money you made and where it was all spent?  What areas did you spend the most on?  Can you cut back in these areas this year?  Did you max out all the areas where you could potentially save?  Most software programs these days allow you to look at all your financial data from last year in lots of different ways.  You can compare last year to 2009 – how did things differ?  If you don’t know the answer to these questions now is the time to start – go buy a program like Quicken and start tracking all of your financial data.  You will look back a year from now and be glad that you did.  You have to know your past before you can plan the future!

7.) Password Storage Keeper – how many passwords do you have to keep track of all your financial data?  Do you know where to find them in case you forget?  If you are like most people who pay their bills online and look at other financial data, you will most likely have multiple passwords to access all your data.  Create a list of all of these and store it somewhere electronically as well as in hard copy format in a protected online and offline vault.  Make sure your entire family knows how to access this in case something happens to you.  Many times we need this information in emergencies and we can’t find it.  Be proactive and do this today.

Take these 7 steps and you will have gotten yourself off to a great financial start to the new year!

About the author

Carleton McHenry, CFP®

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