Updated: Wed, 01/09/2013 - 01:06

Your 2013 financial resolutions plan

special photo - Patrick Brooks
special photo - Patrick Brooks
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As we begin the New Year, many of us will declare new personal and professional goals we hope to achieve in 2013. This is a wonderful idea but should be approached with a plan and specific goals.

Unspecific goals like “be a better person” or “lose some weight” are noble but not defined enough to have real meaning. On the other end of the spectrum, high, unrealistic goals can be doomed to fail and are also of little value in most cases.

If you attend a gym with any regularity, you will see the annual January spike in membership followed by the subsequent emptiness in February. While we aspire to make positive change, in most cases we revert to our old habits in just a few weeks.

Often, it is a case of trying to alter behavior too quickly, and it makes the goals unattainable. Instead of starting with a goal of running a 26.2-mile marathon, most people should start with something like a three-mile or six-mile event.

Financial fitness has many parallels to physical fitness. Both require discipline and long, steady effort.

We all got to where we are financially over many years of making both good and bad financial decisions. Regardless of where you are today, practical and sustainable steps can be taken to help you move forward. Below are some steps I recommend for the New Year to help you get moving in the direction of financial fitness.

Increase your emergency fund

Most of us spend all we make (or more) on a regular monthly basis. The past few years have highlighted the uncertainty of the future and the need for personal savings. A goal of having six months of living expenses is recommended.

Start toward this goal with a savings account separate from your primary checking account. This can be used during times of unemployment or to fund an emergency expense like a high health care plan deductible, not for routine expenses like buying a car or a family vacation.

Participate in your company retirement plan

In the past, retirees received income beyond their working years from a company pension, Social Security and personal savings. Going forward, many of us will not have a company or government pension, and the reliance on Social Security is not a rosy assumption.

That leaves your personal savings as the part of the retirement income plan you have the most control over. If your employer has a company match, make sure you at least contribute enough to obtain the matching dollars. If you are self-employed, you may want to consider a SEP IRA or a SIMPLE IRA depending on your contribution amount and business profile.

Know your numbers

If you go to your doctor for an annual checkup, you will get your baseline cholesterol and blood pressure and other important health numbers. In the same manner, you should have a baseline idea of your investment mix based on asset classes.

Typically, you want to know the percentages you have in the following categories: U.S. Stocks, Non-U.S. Stocks, U.S. Bonds, Non-U.S. Bonds and cash. Beyond those basic numbers you may want to specify small company and mid-size companies as well as the bond type, quality and bond duration.

Bonds may be under pressure in 2013 if interest rates rise or if there are defaults in certain bond markets. Knowing how sensitive your bonds are to rising interest rates is something bond investors should know, but most do not.

Review your beneficiary designations

Things change. Make sure the beneficiary designations on your IRA’s, insurance policies and company plans are up to date. If appropriate, add contingent beneficiaries in the event your primary beneficiary predeceases you. Review the Pro Rata and Per Stirpes designations to clarify your wishes regarding distributions to the surviving family members of your beneficiaries. If this is all new to you, make sure your adviser or attorney explains the difference.

Consider trade authorization on accounts for incapacity

If you want your spouse or another person to be able to provide direction on an investment or retirement account, meet with your adviser to add trade authorization to the account. Without this authorization, the person you may be relying on for help may not be able to access the account on your behalf.

Don’t assume a power of attorney is adequate. Many investment and insurance companies have their own forms, and it may expedite things if this is in place before you become incapacitated. In most cases, having a joint account with someone other than a spouse is a bad idea.

This may expose your assets to their creditors or be a mess if they are involved in a lawsuit. If they are simply on the account for trade authorization, it is not treated as their asset. Where appropriate, you may also want to consider adding a Transfer on Death stipulation. This can allow a non-IRA account to pass directly to your named beneficiary. While this does not avoid estate taxes, it can expedite the transfer process of the assets.

Many of these steps can be addressed in reviewing or completing an estate plan. Typically you will want to coordinate the process with your attorney, financial adviser and insurance professional. While doing the entire plan may seem like a daunting task, it is possible to start with one step and move forward incrementally.

While we cannot control the stock market or the actions of the Federal Reserve, we can take actionable steps to improve our financial picture. I hope 2013 finds you and yours off to a healthy and happy start both personally and professionally.

Pat Brooks is a registered principal and registered options principal with LPL Financial and owns Independent Investment Services, LLC in Savannah. Pat can be reached at 912-692-1000 or pat@iissav.com or via his website at www.iissav.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

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