Morning Extra: Tips To Get Financially Fit In 2014

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Paul Schatz, CIO of Heritage Capital, stops by to give some tips on how to be financially sound in 2014.

1 – Budget. This is so easy, yet so few people actually put pen to paper. You know how much money comes in and when. You know most of your expenses and when they hit. Put a monthly budget together and view it quarterly to manage your cash flow needs.

2 – Plan, plan, plan. No one plans on failing financially or in life, but most people fail to plan. Start with your retirement and the dozens, if not hundreds, of free calculators available online.

3 – Take a financial inventory of your current holdings to compare them to this time last year.

4 – Before saving after tax money, make sure you pay down your credit cards.

5 – Rebalance your portfolio if you use static allocations to stocks and bonds as the stock percentage is likely out of whack given 2013’s strong year.

6 – Don’t chase the rabbit, also known as the Money Magazine Jinx. This year’s big winners are not likely to resemble last year’s big winners. Avoid one of the single biggest mistakes by ignoring what did really well last year, or even better, pruning those back if you own them.

7 – Prepare for the hurricane. Emergency funds are critical, yet most people don’t take the time to build a cash reserve to cover emergencies like losing a job or a catastrophic health issue. Build towards a fund that can cover three to six months of living expenses and keep it very liquid.

8 – Banks are great at offering you money when you need it least, but when you really need it, they won’t lend to you. Establish a home equity line of credit if you can and renew it annually for a very small fee.

9 – 2012 and 2013 delivered strong stock market returns. Don’t get complacent and ignore your portfolio like most investors did right before the crisis in 2008 as well as right before the Dotcom bubble burst.

10 – Don’t ignore your 401K. Just like other investment accounts, for many, this is your largest and should be rebalanced and attended to. Switch out of poorly performing funds. See what funds have been removed or added too your platform.

11 – Take advantage of Uncle Sam and the IRS. Maximize your contribution to your retirement plan. Remember, however much you contribute to your IRA or 401K does not get hit with taxes. And those monies grow tax deferred until they are withdrawn during retirement, presumably at a lower tax rate.

12 – Unless we are staring at another Great Depression, we have already seen the bottom in interest rates and they are not likely to ever go that low again. Make sure your loans all have the lowest rates. Mortgage rates have already risen and should continue to rise over the years and decades. Lock in for the long-term. Once short-term rates begin to rise later this decade, that will affect things like credit cards and auto loans.

13 – Use promotions to rotate from high interest rate credit cards to lower ones. Don’t be shy about calling your credit card companies and asking for a lower rate. Paying high interest rates on your credit cards puts your solidly behind the 8 ball and very difficult to overcome.

14 – Bond mutual funds are the next great wealth decimation wave to hit the U.S. Unlike buying an individual bond, bond mutual funds never mature. Rather, they are pools of money that continually buy and sell bonds. When rates go up, your principal will likely go down, but with individual bonds, you can hold until maturity and receive the face value back. In short, accept a lower interest rate and avoid rate and principal shock of bond mutual funds.

15 – Money flows where it is treated best. With so many global problems in Europe, Japan and China, the good ole US of A remains the best haven for investments.

16 – Hope is not an investment strategy. Buying something without a plan usually ends in disaster. Before investing, have a plan in mind for when things go wrong.

Visit www.InvestForTomorrow.com for more.

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