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Three Small Financial Tweaks You Should Make Before Winter


The end of the year is fast approaching. Soon you’ll be bellying up to your Thanksgiving feast and perhaps playing chicken with other holiday shoppers in some mall parking lot. Of course, you may be thinking about your holiday shopping already. And if you’re smart, you’ll also start working on your financial plans for 2011. It’s never too early.

Here are three simple things that you should do for your finances before year end.

1. Make a financial plan for the upcoming year.

There is no time like the present. Never put off tomorrow what you can do today. I am sure that you have heard all of these clichés before. These sayings may be old but they are true. Now is the time to formulate your financial plan for next year.

Although most of us tend to think about budgeting as a weekly or monthly exercise, you can benefit from making an annual spending plan, too. After all, some expenses (like those holiday gifts) only come around once a year.

Here’s how to do it:

Make a list of your monthly income and expenses from the current year. Be sure to include every expense including the small ones like entertainment. You can then make a projection for next year’s budget from the current year’s expenses. Look for areas where you can trim excess expenditures to increase your bottom line. The total amount of money left over can be used to pay down debt or to start investing.

While you’re at it, craft a plan to reduce your debt in 2011. Find one or two credit card bills or student loans that you can totally pay off before the year is over. You want to finish each year in better financial shape than the previous one.

Feeling ambitious? Take the time to make a five-year financial plan.

2. Review your investment portfolio.

Smart investors buy and hold, but they don’t just “set and forget”. Periodically, you should re-balance your portfolio. The end of the year is a perfect time.

Review your investment strategy over the past couple of years and see how it worked for you. Were you too aggressive or too conservative in your investing? Did your portfolio outperform the market as a whole? You may think that you are a master investor, but if your performance lagged the market, then you may need to look at picking up an index fund.

Check over your portfolio and rebalance if necessary. Make sure that your asset allocation plan is still in line with your goals. You may find that your portfolio mix has shifted dramatically during the year. It only takes a few minutes to get your portfolio back into balance. You should also update your contact information and beneficiaries. Save yourself the headache of making these changes in the New Year.

3. Increase your contribution amount.

Did you know that your investment contribution amount should never stay the same? If you are contributing the same amount to your retirement plan as in 2009, then something is wrong. Every year that passes you should increase the amount of money that you contribute to your 401(k) or IRA. Your company may have provided you with a raise over the past 10 months or an end of the year bonus. A portion of this money should be applied to your retirement portfolio.

At a minimum, try to increase your contribution 1% every year. Although you shouldn’t miss 1% every time you add it, over time those small increases become 5% and 10%, which means a big long-term boost to your investments.

Don’t have a retirement plan? Open one! Learn why you need a Roth IRA.

Well that’s your hit list for the end of the year. I hope that this helps you in your wealth building goals! If you start tackling some of these now, you’ll have a few less To-Dos on your list when the New Year rolls around.

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