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Saturday, 18 December 2010

5 Financial Resolutions for the New Year

Doug Lockwood

It's never too early to start with New Year's resolutions, particularly as you enter the holiday season and begin contemplating how to best strengthen your family's financial future.

Here are five financial resolutions that will put you ahead of the curve over the long run.

1. Lay a balanced investment groundwork. Does your current asset allocation--the mix of securities in your investment portfolio--still match your risk tolerance and time horizon? Complete a risk tolerance questionnaire each year to make sure your asset allocation is aligned with the risk you are willing to assume. You can find many samples of these online or through your employer-sponsored retirement plan.

Why go through this exercise? Quite simply, stock market performance over the past few years may have shifted the value of your stock holdings above or below the level you had originally intended. This is a particularly worthwhile consideration given the extreme market volatility of the past few years. If your stock holdings have changed meaningfully in value, consider rebalancing--either by selling some of your stock or bond investments or by purchasing more stock, bond, or cash investments.

2. Create a nest for the future. Rather than just hoping you'll have enough for a comfortable retirement, take some time to calculate how much you'll need--and how much you'll need to save.

Think it through in terms of what your "must have" expenses might be, such as housing, and what your "nice to have" expenses could be, like an annual vacation to the tropics or a ski resort. Once you've figured out what your future liabilities could be, you can establish a realistic accumulation goal and ensure that you're on course to reach it. If you don't know how much you are going to need to retire comfortably, how will you know how much to save?

3. Check your family's financial security system. Savings and investments can be wiped out through some unforeseen calamity if you don't have the right financial security system in place. Far too many people are shockingly under-insured, and this is a shame, because insurance can help protect you and your loved ones from the costs of accidents, illness, disability, and death. As such, it is an important part of any sound financial plan.

Your individual need for coverage will depend on your personal circumstances, including your age, family, and financial situation. A young, single person, for example, may not need much life insurance. A person with a growing family, on the other hand, may need to ensure adequate financial protection for loved ones.

Whatever your particular situation may be, it's always best to go through a checklist of what insurance you have--and equally important, what kind of insurance you lack--and determine how to best fill in that gap to safeguard your family's financial future.

4. Preserve the assets you've accumulated. You may not enjoy thinking about what will happen after you're gone, but failing to plan could cost your family and loved ones. A sound estate plan can help preserve your assets and keep them from being unnecessarily reduced by taxes. Studies show that more than half of Americans die without a will. Your estate plan should include an up-to-date will, a power of attorney, a living will, and may make use of tools for charitable giving and joint ownership of property.

5. Debt can threaten the foundation. While you're putting the rest of your financial plan in order, don't neglect credit card balances or other outstanding debt. Consider ways to either reduce your debt or manage it better. For example, you might be able to save on interest charges by consolidating and transferring your credit card balance or by refinancing your mortgage.

Your financial house is a complex structure that needs regular upkeep. By keeping it in order throughout the year, you'll be well on your way to reaching your goals.

Finally, as with any New Year's resolution, it's all about the follow-through. How many times have you had a great idea and a moment later you couldn't remember it? Try using some of the financial aggregation tools that are available for free online. One of my favorites is Mint.com. Good luck!

Doug Lockwood, CFP, is a Partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over 18 years. He was recently named one of America's Top 100 Financial Advisors by Registered Rep magazine (August 2010) based on assets under management.

Doug Lockwood is a registered representative with and securities offered and advisory services through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. LPL Financial is not affiliated with Mint.com.

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