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Get a Financial Tune-Up For the New Year


Start the year off right with tips on saving, budgeting, credit, insurance and putting your kid through school.


Getting the basics right is the first step in organizing your finances for the new year.

Remember: Inertia is just a fancy word for the same old rut.

Here's how to get unstuck, shed your bad habits and make better use of your money by drafting a budget, starting to save, using credit wisely, getting withholding right, understanding charitable giving, defining needed insurance coverage and avoiding the stupidity tax:

  • Develop a Budget: You can't spend wisely if you don't know where your money is going. A detailed spending plan will help you track your money and make better use of it. "How To Make a Household Budget That Works" can tell you more.

  • Develop a Savings Plan: Regular deposits in a savings account and compound interest produces amazing results, especially if stashing cash is a foreign concept. The secret to success: Take money off top. Your efforts will fail if you plan to bank what's left over at the end of the month because expenses have a way of expanding to consume income. Read more in "Seven Tips For Saving", "CDARS: Seeing the Forest for the Trees," "Play It Safe With CDs and Bonds" and "Is Gold Right For You?"

  • Use Credit Wisely: If you've had trouble with credit in the past, get it straight now as part of your financial rehab. Fixing bad credit takes time and effort, but isn't impossible. More information can be found in "How to Fix Your Credit" and "How To Read a Credit Report."

  • Adjust Tax Withholding: It's smart to adjust your withholding long before April 15th, unless you feel it's your duty to give the IRS a significant chunk of your paycheck interest free for a year or perhaps you enjoy getting slapped by a huge tax bill each spring. You don't want to be significantly over- or under-withheld. Check last year's tax return, factor in this year's income and make adjustments if needed for the year ahead. Review your withholding when you file your taxes each year and make any needed tweaks.

  • Charitable Giving: Get the tax considerations right to make the most of your charitable donation. You need to know about the December 31 deadline for claiming a deduction this year, "qualified" charitable organizations and the tax benefits of donating appreciated stock. This helps others and underscores an important lesson for your kids: There's more to the holidays than toys. Read more in "How To Make The Most Of Giving."

  • Insurance: Review your life, car and house or apartment coverage and update as needed. Price will vary by company, region and amount of coverage so do your homework. Get three or four quotes from different carriers before buying a policy. Getting it right now will save you money now and possibly grief later.

  • College Savings: Your first baby is due soon and you haven't thought about a college savings plan, eh? Get busy. Go after high returns with moderate risk when your child is young and gradually reduce risk as freshman year draws closer. Mutual funds are a good bet when children are young, but if you have fewer than five years before your child sits down to freshman composition, consider a certificate of deposit. "529 Plan Helps You Save For College" and "Rating College Savings Plans" give more detail.

  • Mutual Funds: First, determine your goals because that will point you to the type of fund that best meets your needs. Then balance cost, risk and performance. Remember that you pay a fee for a pro to manage your money and this reduces your yield. Exchange Traded Funds might be a solid, low-priced alternative. ETFs represent a basket of stocks in an industry sector and give investors immediate diversification. They're not actively managed so fees are low. Read more in "ETFs Explained."

  • Avoid the Stupidity Tax: That's extra money sucked out of your pocket for not paying your credit card bill on time, being slow with the mortgage or rent check, or even mundane things like not returning DVDs and library books on time. Such fees are a tax on stupidity--yours. With a little thought, you can avoid the stupidity tax and keep all that money in your pocket. Warning: This creates a new problem. What will you do with the extra dough? Hmmmm, perhaps you could save it.

  • Buying Your First House: Nail down the basics if you're planning to buy your first house. Determine how long you plan to live in the house because this will help you decide between a fixed-term or adjustable-rate mortgage. Do your homework on paying points and be prepared to pay private mortgage insurance if the loan totals 80% or more of the value of the house. "Mortgage Primer: What First-time Buyers Need To Know" can tell you more.

  • Love and Money: Talk to your sweetie about personal finance because money problems kill more relationships than the bedroom Olympics. For more, check out "Spenders vs. Savers: Balancing Love and Money," "Unmarried Couples: Live Together, Thrive Together," and "Making Divorce As Painless As Possible."
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