Savings, Insurance, Wills, Planning: Here Are Some Tips
14 01 08 - 11:27
By CLAUDIA BUCK
The Miami Herald
Forget those New Year's resolutions to lose weight or take up Spanish. In the interest of flexing your financial muscles, we tapped a number of experts for their best recommendations on savings, insurance, wills and estates, and financial planning. Read on for their routes to fiscal fitness in 2008.
PREPARE FOR CALAMITIES
1. If you've been on the same individual family health plan for several years, consider applying with another carrier. If healthy, you'll likely get a lower rate than you previously were paying and a 6- to 12-month guaranteed rate to boot.
2. If you are married and one spouse is five to 10 years younger, list the younger spouse as the primary insured on your family's health plan. Monthly premium rates are determined by the age of the primary spouse.
3. Reconsider your term life insurance. Perhaps you were a smoker but have successfully completed a smoking-cessation program and now qualify for nonsmoker rates. Maybe you've lost considerable weight and kept it off, which also could result in lower premiums.
4. Protect yourself against unexpected calamities. Consider getting extra disability insurance, in case you cannot work or collect a paycheck due to illness or injury. This is especially important for self-employed and independent contractors who do not fall under employer-sponsored plans. It's available through the state or private insurance companies. Even for high-income individuals already covered by their employer's group disability plan, the additional coverage can make sense to compensate for bonuses and commission income not covered by most group plans.
5. Look at ways to lower your auto insurance. Increase the deductibles, if possible, to lower premiums. If you're a AAA Auto Club member, for instance, remove the towing charge on your auto policy. Why have towing when AAA already covers it? If you're adequately covered by health insurance (such as an employer-sponsored health plan), remove the medical payments line item charge from your auto policy, which can reduce premium costs. Before making any changes, however, check with your auto insurer.
BOOST YOUR CREDIT SCORE
1. Sign up for direct deposit of your payroll check, and set aside a fixed amount that goes directly into a savings account where you won't touch it. You'll be surprised by how much you save over time. Doing this, I saved for the down payment on my first home.
2. Convert to online payments for bills. You will save money on postage and checking costs, avoid late fees, and have better financial recordkeeping to help manage your bills.
3. Ladder your CDs. Stagger the maturity dates so you're not rolling all of them over at the same time. Check your bank or credit union's interest rates. There's usually a generous spread between six-month CDs and longer-held CDs that can offer better rates. Buy CDs in April or October when many financial institutions offer special rates or discounts.
4. Improve your credit score. Your FICO score determines so much of your financial life: interest rate on loans, auto insurance rates, credit lines, eligibility for apartments and even job prospects. To raise your score, review your credit report annually and cancel unused credit cards, try to limit the number of credit lines, set up loans with automatic payments to avoid being late. If you are new to credit, obtain and repay a few small loans so you establish a sound record. Find out more at www.myfico.com.
5. For many young people, cars are the first major purchases. Go online to study prices and options, then check the loan rates at your bank or credit union. With your financing already arranged, you can shop like a cash buyer. If you want a warranty or a gap insurance policy that pays off the difference between your loan and the vehicle's value in the event of a total loss in an accident, check policy prices before visiting the dealer. You might save a substantial amount by buying a "mechanical breakdown" insurance policy from your credit union instead.
6. Use a debit card instead of cash. If you pay with cash, you are likely to lose track of what you're spending. A debit card helps keep a record of your expenses and can help avoid ATM fees. Plus, if you don't carry much cash, you aren't risking much if your wallet is lost or stolen.
(Note: Use this method only if you can control your spending impulses. If not, use cash because when you run out, you're done spending.)
7. When interest rates are low, add an extra amount to your mortgage payment to pay down your balance sooner. If your bank or credit union allows it, convert your mortgage to biweekly payments to match your pay periods. You'll make one extra monthly payment a year, which pays down your principal sooner and saves on interest. Note that some financial institutions charge a fee to set up a biweekly payment plan.
8. If choosing between getting a lower price or zero percent financing, always take the lower price. Money today is always worth more than savings down the road. Since sales tax is based on price, taking a lower price also means paying less in taxes.
9. Take advantage of every tax shelter that's available. Put your first savings dollars into your employer's 401(k) plan, which usually provides a matching amount (free money). Your money grows tax-free until you withdraw it. (Don't put 401(k) money in company stock.) Put your next dollars into either a Roth IRA or a regular IRA, because Uncle Sam gives tax breaks if you save for your own retirement. If your company has a Section 125 plan, use it to pay the employee portion of your health care. Using these pre-tax dollars to pay your health care premiums makes a lot of sense.
10. Work out for 30 minutes every day, even if it's just a walk around the neighborhood. Exercise will keep you healthy, which will save you more than anything else I can suggest.
STICK TO ESSENTIALS
1. Decrease your "instant gratification" purchases. These are life's nonessential items - electronics, expensive shoes, even a daily latte - for which you cannot afford to pay cash. Before you buy it, ask yourself: "Can I really pay for this at the end of the month when the credit card bill comes due?" If the answer is "no," then walk away.
2. Review your homeowner's insurance policy. Make sure you have enough catastrophic coverage to rebuild your house after a flood or fire, given today's construction costs. Review your deductibles. Many times you can increase your coverage and deductible without raising your premiums. If your deductible is only $500, that's too low for most homeowners' claims. Raising it to $1,000 and increasing your dwelling coverage from $100,000 to $250,000, for instance, may not result in a significant premium increase. Another tip: Combine your auto/home insurance with one carrier, which can yield a discount.
3. Take control of your own retirement. Start by increasing your contribution to your workplace retirement plan. Whenever you get a raise, increase the contribution until you reach the maximum. If you haven't already done so, open a traditional or Roth IRA. Check online or with a tax preparer or financial adviser about eligibility and limitations on contributions.
4. Read one financial article a month. Money and Kiplinger's magazines have great monthly articles with money-saving tips. Or visit the magazines' Web sites for articles with financial advice.
5. If you're a new homebuyer, take note: You might qualify for a new tax deduction for your private mortgage insurance. Most homeowners who put less than 20 percent down on a home loan pay this insurance. The new law applies to homeowners with adjusted gross income of $100,000 or less who had mortgages issued after Dec. 31, 2006. Check your mortgage statement and take the deduction if you qualify.
6. Check out new capital gains laws. Beginning in 2008, any long-term capital gains and qualified dividends are tax free to those in the 10 percent or 15 percent tax brackets. This applies to joint filers with taxable income (minus deductions and exemptions) up to $65,150 and single taxpayers with taxable income up to $32,550. One way to use it: If you're financially helping a child or elderly parent, for instance, give them a stock or mutual fund that's appreciated. Assuming their income is below the stated limits, they can cash the gift stock or mutual fund and pay zero in capital gains taxes. (And as the donor, you can give up to $12,000 annually without incurring a gift tax.)
7. Buy a pair of athletic shoes and begin a walking or running program. By getting "physically fit," you'll save money in medical costs, thereby increasing your "fiscal fitness."
PROTECT YOUR HEIRS
1. For you: Get an Advance Health Care Directive, which details your health care preferences. Remember Terry Schiavo?
2. For your spouse: A will is better than nothing, but investigate whether you and your spouse need a living trust, which can preserve your assets for your beneficiaries and help avoid probate. You could have a trust done for far less money than the cost of going through probate - 4 percent of the estate's first $100,000.
3. For your parents: Determine whether they need a living trust done or should update an existing one. An up-to-date trust can make dealing with their wishes, illnesses and assets much, much, much easier.
4. For your children: Make sure that your will names the correct guardians for your minor children. Sometimes we change our minds about who we've designated but forget to change guardianship in our will.
5. For your special needs child: Find out how a special needs trust can provide for them when you are no longer able.
6. For your devoted pets: Consider a pet trust, which can provide for their care after you're gone.
7. For society: Give your children enough financially to help them to do something with their lives, but not enough to do nothing. The world does not need another Paris Hilton.