The Five Steps for Financial Fitness
By James Berman
Getting your finances into shape can appear daunting. Breaking it down into categories can help simplify the process. There are five main categories that everyone should tackle:
1) Tax Planning
Speak to your accountant now about tax planning. With the expiration of the payroll tax holiday and other "fiscal cliff" induced changes, don't wait until April to make sure 2013 withholding and estimated taxes have been properly adjusted.
2) Pension Plans
If you don't yet have some type of tax-advantaged pension plan [IRA, Roth IRA, SEP, 401(k), etc], ask your accountant about eligibility. Be sure to fund your existing pension to the maximum allowable amount every year. If you have an IRA, Roth IRA, or SEP, be sure to keep your contributions up to date. Be aware that Required Mandatory Distributions (RMD's) from retirement plans and annuities must begin by April 1 after the year you turn 70.5. If you have reached this age, be sure you're taking the RMD on time. There are punishing penalties for non-compliance.
3) Estate Planning
It's imperative to have an up-to-date estate plan. Consult a trusts and estates lawyer. Your lawyer should draw up a will, and consider a living will/health care proxy and a durable power of attorney. The lawyer should review your estate for potential trust and life insurance strategies and should update the estate plan after major life events, such as marriages, divorces, births, etc. Finally, your lawyer should thoroughly examine your beneficiary designations on all pension plans. This final item is very important because beneficiary designations on pensions supersede a will and must be coordinated with your general estate plan.
Review your insurance coverage. Make sure that you have adequate health, prescription drug, auto, life, disability, umbrella liability, professional liability, long-term care, homeowners/renters, and flood insurance. You may have some of this coverage through work, but don't assume so. Call your benefits specialist to find out the details. Conversely, be sure that you are not over-insured. Contact Social Security three months before you turn 65 to enroll in Medicare and to inquire about your benefit options. Consider buying supplemental insurance to cover the gaps in Medicare coverage, such as those offered through AARP.
5) Identity Theft Protection
Identity theft is at epidemic proportions. Protect yourself against this potential nightmare. The most basic prevention technique is to review your credit reports at least once a year here, being sure to note any suspicious new accounts or activity. There are also services that will alert you to new credit activity on your reports such as lifelock.com.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
An earlier version of this article was published on The Huffington Post.
ABOUT LESSONS FROM THE LEMONADE STAND
Written for aspiring investors of all ages, Lessons from the Lemonade Stand explains everything you need to know in the context of that most classic of all American businesses: the corner lemonade stand.
Rooted in the fundamental truth that “common sense is the best investment tool,” the book slices important concepts into simple sections, sweetening them with folksy, easy-to-read language. The trials and tribulations of lemonade stand owner Lucinda highlight every concept from interest rates to retirement accounts to leverage. Learn investment basics as you follow Lucinda Lemonade Inc. along its sweet (and sometimes sour) journey as a start-up, from the squeeze of the first lemon to its initial private equity deal and its eventual foray into tech, all in the tidy town of Lemonville.
Entertaining and fun, Lessons from the Lemonade Stand supplies readers with the ingredients they need to become savvy investors.
ABOUT JAMES BERMAN
James Berman is the president and founder of JBGlobal.com LLC, an SEC-registered investment advisory firm specializing in asset management for high-net-worth individuals and trusts. With over 16 years of experience managing client portfolios, Mr. Berman is a specialist in value investing and asset allocation. As the president of JBGlobal LLC, the general partner of the JBGlobal Fund LP, Mr. Berman manages a global equities fund that invests in the United States, Europe, and Asia.
Mr. Berman is a faculty member in the Finance Department of NYU (SCPS Division), where he teaches corporate finance. He also serves as subadvisor to Eitan Ventures LLC, a venture capital fund based in New York.
Mr. Berman has appeared on CNBC, the Fox News Channel, the Cavuto Show, and the Fox Business Channel and is frequently published and quoted in a variety of publications, including the Wall Street Journal, Barrons, Fortune, Bloomberg, and CNN Money. As a regular blogger for the Huffington Post, he covers financial topics ranging from hedge funds to the economy. He writes a monthly interactive investment letter, the Berman Value Folio, a Forbes/Trefis publication.
Mr. Berman received a BA (magna cum laude, Phi Beta Kappa) from Harvard University and a JD from Harvard Law School.