CREATE A WISH LIST. Want more happiness from your dollars? Write down the major purchases you’d like to make in the next few years—perhaps a car, vacation or kitchen remodeling. Regularly revise the list, keeping only items you’re still enthusiastic about. Result: You’ll likely make wiser spending decisions—and you’ll enjoy a long period of pleasurable anticipation.
TRIM YOUR CHECKING ACCOUNT. If there were a guaranteed way to earn an extra one percentage point a year on your investments, you’d jump at the opportunity. So why would you leave excess cash in your checking account, where it likely isn’t earning interest, when that money could be in a high-yield savings account earning 1% a year or more?
WRITE IT DOWN. Want to spend less, drink less coffee or booze, eat less or exercise more? Keep a diary devoted to one or more of these things. For instance, if you write down every dollar you spend, you won’t just have a better idea of where your money goes. You’ll also be more conscious of when you’re spending—and that by itself will prompt you to cut back.
GET ORGANIZED. Keep the supporting material for your past seven tax returns. The rest can be tossed. If your brokerage firm and mutual fund companies provide cost basis information for your investments, there may be no need to keep old statements. Tell your family where they can find your will, a complete list of your financial accounts, and all your usernames and passwords.
CHECK YOUR PORTFOLIO PERCENTAGES. Foreign shares have topped the performance charts in 2017, U.S. growth stocks have surged, U.S. value has lagged, blue chips have outpaced small caps, bonds have puttered along and REITs have struggled. All this may have pushed your portfolio away from target asset allocation—and it could be time to rebalance.
ADD UP YOUR FIXED LIVING COSTS. Include mortgage or rent, car payments, property taxes, insurance premiums, utilities and other recurring monthly expenses. How long could you cover these costs if you lost your job? Are these expenses so high that you find it tough to save—and suffer constant financial stress? My advice: Keep fixed costs below 50% of pretax monthly income.
ELIMINATE DUPLICATION. Many folks have multiple bank and brokerage accounts, multiple funds that invest in the same market sector and even multiple advisors. This can make sense if, say, the goal is to increase FDIC insurance. But often it reflects a naïve notion of diversification—that more accounts somehow mean greater safety. My advice: Simplify—for your sake and the sake of your heirs.
SNATCH THE MATCH. Are you on track to contribute enough to your 401(k) to get this year’s full matching employer contribution? If not, crank up your contribution now, so you can spread the required sum over this year’s remaining paychecks. In 2017, the maximum 401(k) contribution is $18,000, or $24,000 if you’re age 50 or older.
REVIEW THIS YEAR’S SPENDING. Which expenditures do you remember with a smile—and which prompt a shrug of the shoulders and maybe even a wince? To jog your memory, look back through your bank and credit card statements. Lavishing dollars on stuff you don’t enjoy? Maybe it’s time to change the way you spend.
SET UP A HOME EQUITY LINE OF CREDIT. Be sure to read the fine print. But typically, all that’s involved is paperwork and perhaps a $50-a-year fee. Ideally, you’d never use the credit line. But it could come in handy if you have a financial emergency and as a lower-interest, tax-deductible alternative to car loans and education loans.
THINK OF YOUR ASSETS AS INCOME. If you retired today, how much income would your nest egg generate? One rule of thumb says that, in the first year of retirement, you can withdraw 4% of your portfolio’s value, equal to $4,000 for every $100,000 saved. It’s a sobering way to assess your retirement readiness—and it might prompt you to save more, postpone retirement or work part-time in retirement.
CAP ALTERNATIVE INVESTMENTS. How much do you have in alternative investments—everything from gold to commodities to hedge funds? As a rule, keep your allocation to 10% or less of your total portfolio’s value, and favor simpler, less expensive options, such as funds that focus on gold stocks and on real estate investment trusts.
UPGRADE YOUR CREDIT CARDS. If you use one that doesn’t offer cash back or other rewards, swap it for one that does. Pay an annual fee? That might be worth it for the first year if it’s a travel rewards card that offers a large initial bonus. But if you can’t get a retention bonus or the fee waived for year two, you might cancel and get a new card.
IMAGINE STOCKS PLUNGED 30%. That’s not a prediction, but it is always a possibility. Think about your portfolio’s loss in dollar terms, so it seems more real. Ponder whether the financial hit would unnerve you—and whether it would imperil any upcoming goals. If the answer is “yes,” you might want to lighten up on stocks.
ROUND UP THE MORTGAGE CHECK. If you’re paying $1,512 a month, send the mortgage company $1,600 instead. It’s a painless way to increase your monthly savings, the extra $88 a month could allow you to pay off your mortgage years earlier, and you’ll earn a pretax return equal to your mortgage’s interest rate. That rate will likely be lower than the long-run return on stocks, but it should be better than you can get with high-quality bonds and certificates of deposit.