A financial New Year’s resolution

By Robert E. Kerber, Hefren-Tillotson Inc.

As 2011 comes to a close, we look forward to 2012. For most of us, this is the time to resolve to make the New Year better than the one before. For some, this is usually the idea of looking to work out more or eat better, but for others, it is the wish to finally get your personal finances in order. The question remains, how well do you know your own personal situation, and do you know what you own in the way of investments? The thought of having to go through all of your records and statements and actually put on paper what you have and what you own can be very daunting. But it is a necessary task to accomplish this goal.

As a financial adviser, I would recommend the following steps to help make your resolution into a reality.

A main priority during these difficult economic times should be to build up your emergency reserve. This is cash that you save into your checking or savings account. Yes, it will not earn you very much, but it certainly is not going to lose money, either. Everyone should have three to six months of income needed to cover your monthly expenses should you lose your job.

Another important aspect is to understand your monthly flows of money; how much money is coming in each month versus how much you are spending. Hopefully you find yourself on the right side of this equation. As long as you have net monthly inflows of money, you should be working on a few fundamentals to saving for retirement.

First, have you paid down all of your debt? We feel that the best debt to have is no debt at all. It just doesn’t make sense to pay the minimum each month on 19 percent credit card interest. You will never see the day when it is paid off.

Second, are you saving into your company 401k or retirement plan? Remember, every little bit helps. In the year 2012 you can put away up to $17,000 and an extra $5,500 if you are over 50 years old.

Third, if you have extra cash building up, you should be putting money away into a Roth IRA or Traditional IRA. Do you have a spouse who does not work and not able to save in a retirement plan? Then the IRA or Roth IRA is a way for them to be able to save, as well. The limits for 2012 IRA contributions remain at $5,000 and an extra $1,000 if you are over 50 years old.

I feel that the most important aspect of getting your finances in order is to begin consolidating your accounts. The main reason for doing this is to make sure that you understand what all of your assets are invested in. Too many times, we run across investors who may have four or five brokerage accounts at different firms, only to find out that they are all invested similarly. This breaks the number one rule of diversification.

This could be the best thing you can do for your loved ones. Too often, when a loved one passes away, the surviving spouse or children are left with calling all of these different financial institutions to find out what assets are in those accounts; not an easy task. By consolidating those assets now, your investments will have a cohesive investment strategy and the transition would be fairly easy when one passes away.

Last but not least, have you updated your estate documents? Most people have a will in place, but it may have been drafted 20 years ago. Are your intentions the same as they were when you first had your will written? Are all parties still living that you list in your will? We suggest you have your will updated or reviewed every five to 10 years.

The other two documents that are very important are Durable Powers of Attorney and Advanced Health Care Directives. These two documents allow you to specify in advance how you wish to be cared for in a hospital or nursing home and who would be acting on your behalf with your investments. These documents are very important and should not be put off.

Together, let’s make 2010 a financially healthy year.

If you would like to learn more about how to financially prepare in the New Year, you can contact me at 412-833-5777 or at bob.kerber@hefren.com.

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