Financial Planning for the New Year – January 13, 2008

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Financial Planning for the New Year- January 13, 2008

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
January 13, 2008

Financial Planning for the New Year
January 13, 2008

Last week I discussed what you should do to prepare your investments for the New Year.  Now, let’s take a look at the key things you should consider regarding your personal finances.  Here’s a simple checklist that will make sure you start 2008 on the right financial foot:


  • Get organized.  Now is the time to set up your income tax filing system for 2008.   Take a moment to review your most recent tax return and set up files for each tax category.  Examples include charitable giving, medical expenses, miscellaneous business deductions, and mortgage interest.  Once you have your system set up, simply drop your receipts, copies of cancelled checks or copies of credit card statements into the appropriate folder.  An alternative is to set your control system using a software system such as Quicken.  You should also set up files for bank statements, credit card statements, mortgage statements, monthly bills, etc.
  • Check your life insurance.  One of the biggest financial mistakes I see people make is inappropriate life insurance.  In most cases, there’s not enough life insurance.  Here’s a simple test: Take eighty percent of your gross income and multiply it by twenty.  Your answer will give you a ball-park estimate of the amount of life insurance you should have on your life assuming that you have dependants.  Now check your answer against the amount of life insurance you own.  If you have significantly more or less than this number, schedule an appointment with your financial advisor or insurance professional for a review.  Also, double-check to make certain your beneficiaries are appropriate, including your contingent beneficiaries. 
  • Review your benefits.  Visit your Human Resources department and review your fringe benefits package.  Determine if you are taking full advantage of the benefits offered.  If you have a cafeteria plan, review last year’s qualified expenses and estimate the amount of qualified expenses you will use this year so that you are able to maximize your pre-tax spending.  Many companies offer multiple health plans.  Be sure your current plan best serves your needs for the coming year. 
  • Review your will.  Studies suggest that more that eighty percent of adult Americans either don’t have a will or their will is out of date based on their current circumstances.  Wills are typically complicated legal documents that are hard for most people to understand so consider visiting with your attorney for a review, especially if you have not done this in the past five years or if you have had significant life changes such as the birth of a child, divorce, or a death in the family. 
  • Invest for your child’s future.  The cost of college continues to rise sharply each year, averaging more than six percent in most cases.  The best way to prepare is start investing early.  The best choice of investment for most families is the 529 plan.  These are plans offered by the various states as well as some colleges whereby your investment grows tax deferred and withdrawals are tax free when used for qualified expenses.  


For more details on choosing the best 529 plan, be sure to look for next week’s column where I will cover this topic in detail.