Here are some simple suggestions to consider in the coming year to improve your financial picture:
- Eliminate high interest credit card debt by refinancing or using a home equity second mortgage at much lower interest rates. The interest may become deductible and the overall interest cost will be much lower. Caveat: Cut up or restrict the use of credit cards to prevent a recurrence of the problem.
- Borrow from your retirement plan rather than the car dealer or finance company. (You are borrowing your own money and paying yourself interest.) Better yet, set the interest rate higher so that you force yourself to pay back more – in effect, a forced savings plan.
- Cut your insurance bills by raising your deductibles and eliminating unnecessary coverages. If your five year old car is paid off, comprehensive and collision coverage may not be worth the cost if the car is significantly depreciated.
- Use your insurance savings from the previous paragraph to purchase an umbrella insurance policy. These are reasonably inexpensive and kick in after your basic homeowners and auto policies are exhausted. Remember, insurance is for catastrophic losses, not routine problems.
- Invest in your home, especially parts of your home that you use every day. Energy saving windows, kitchen and bathroom remodeling not only increase the value and resale potential; you also get the daily benefit of enjoyment out of these enhancements, which can be priceless. Take advantage of incredibly low mortgage rates while you can.
- Establish a payroll savings account. Force yourself to save. Once established, you will forget about it until year end, when you will look back and realize how smart you were last January. As an alternative, increase your 401(k) contribution percentage. You won’t feel it today, but you will years from now.
- Make a will. If you have one, take it out and read it. If your will is over a few years old, it is probably out of date, especially if you consider the vast changes Congress has mandated in the Federal Estate Tax in recent years.