Investing For Your Future
Monthly IFYF Investment Message
January 2005
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Happy New Year from the Cooperative Extension System and its cadre of county Cooperative Extension offices and financial educators nationwide. The start of a new year is a great time to assess your personal finances and take action to improve your net worth and overall financial well-being. Not sure how to get started? Consider the following tips:
1.Play Catch Up--Did you make a 2004 contribution to your individual retirement account (IRA) or simplified Employee Pension (SEP), if you are self-employed? If not, there's still time. You have until April 15 to do so. The maximum annual IRA contribution for 2004 is the higher of earned income or $3,000, with an additional $500 for workers age 50 and over. In 2005, the annual IRA contribution limits for younger and older workers increase to $4,000 and $4,500, respectively.
2.Calculate Net Worth--Add up the total of your debts and subtract it from the total of your assets. A net worth statement provides a "snapshot" of your financial situation at a particular point in time and a benchmark against which to measure future progress.
3.Check Your Credit Report--By law, New Jersey residents can request one free credit report annually from each of the three major credit bureaus: Experian, Equifax, and TransUnion. Check it carefully for errors and evidence of identity theft and notify the credit bureau immediately if there's a problem.
4.Calculate Your Debt-to-Income Ratio--Divide the monthly total of your consumer debt payments (excluding a mortgage) by take-home pay. If the ratio is greater than 15%, pay off what you owe and don't take on new credit obligations.
5.Review Your Insurance Coverage--Contact your insurance agent to review your current and future policy needs and available cost-saving strategies. Consider increasing your homeowner's insurance deductibles to $500 or $1,000 to avoid having your policy cancelled for small claims.
6.Automate Your Investments--Arrange to make automatic deposits for retirement savings plans, mutual funds, stocks, and/or U.S. savings bonds. Not only is this convenient, but it takes the emotion out of investing as deposits are made regardless of market conditions.
7.Assess Your Investment Risk Tolerance--Make sure that your investments match your risk tolerance. A simple risk tolerance quiz can be round on the Rutgers Cooperative Extension Web site http://www.rcre.rutgers.edu/money2000 (click on "Resources").
8.Set Written Financial Goals--Many people have only a vague idea of what they want to accomplish financially. Write down what you want, how much it will cost, and a target date for completion.
9.Consider Getting Help--Professional advice can be very helpful if you're facing new life challenges (e.g., a divorce) or decisions (e.g., investing an inheritance). To find the names of local certified financial planners, check the Web sites www.cfp-board.org and ww.fpanet.org.
10.Stay Informed--Pick a personal finance magazine (e.g., Money, Smart Money, Kiplinger's) and subscribe to it or watch a financial news program on television. Attend seminars offered by Cooperative Extension, financial services firms, and other education providers or visit financial planning Web sites. Never consider your financial education finished.