January, 2011
By Michael Kalscheur, CFP®
Senior Financial Consultant, Castle Wealth Advisors, LLC

We hope that you had a Merry Christmas and Happy New Year.

Now that holidays are over, it’s time to buckle down and get back to work. With a new year inevitably come New Year’s resolutions, most of which involve quitting smoking, losing 10 pounds, learning a new language, or the like. Some people even make a New Year’s resolution to improve their finances.

One of the best ways to improve your finances is to look back over 2010 and see what worked for your financial situation and what didn’t. For example:

  • Were you worried about the stock market after the crash in 2008 and early 2009, so you put most of your money in cash? If so, you missed a strong rally in the market – the S&P 500 was up over 15% in 2010.
    • This year – Find an asset allocation that fits your timeframe and risk tolerance and stick with it. This will force you to be more aggressive when times are tough and more conservative when everything looks great (that’s about the time the wheels fall off).
  • Are you worried you aren’t putting enough money away for retirement, but can’t seem to find any extra money each month?
    • This year – Pay yourself first. Take advantage of your 401k or 403b through work. The contributions are taken out of your paycheck automatically so you never see the funds. Automatic savings plans are also great for Traditional and Roth IRA’s.
  • Do you want a safe investment that won’t lose value, but are sick of earning a paltry 1% (if that) on your savings account or CD?
    • Pay off your debt. No investment out there can compete with the 15% - 25% rates that most credit cards charge (if you pay $1,000 on a credit card, you just made yourself 15% of that money by not paying the interest on it). Other debt, such as student loans or car loans may be in the 6% - 8% range.
    • Consider paying extra on your mortgage. The after-tax rate on most mortgages is in the 3% - 4% range; still better than any CD you’ll find. An extra $100 per month on a $200,000 mortgage cuts 5 years off a 30 year loan.
  • Are income taxes taking a big bite out of your paycheck? Worried about taxes going up in the future, leaving you with less income each year?
    • For current tax savings, take advantage of your 401k or 403b. Both are funded with pre-tax dollars, lowering your current taxable income.
    • On the other hand, if you are in the 15% tax bracket (taxable income of $68,000 or less for married couples), you may want to fund a Roth IRA, or even convert Traditional IRA assets to a Roth. Congress extended tax rates for two more years, but there is no guarantee that they won’t go up down the road.
  • Worried that the money in your child’s college savings account at the bank won’t be enough to cover the full cost of college?
    • 529 college savings plans are a great way to save since all growth is tax free if used for college. Several states also have state income tax deductions or credits for investing in the state plan. Save for college and get a tax break too!
    • Savings should be just one part of paying for college. Paying some out of pocket depends on paying off other debt (see above). Loans are always an option, but have a frank discussion with your children about how much they should be contributing too.
  • What if something happened to you? Would your spouse and your family be OK?
    • Make sure you have enough insurance to protect against major catastrophes (life, disability and medical). Consider higher deductibles to reduce your premiums. $5,000 might hurt, but $50,000 or $500,000 could mean bankruptcy.
    • Now is a good time to make sure you have Wills that are accurate and up-to-date. They do not take as much time or money to have as you might think, and they can last for years if properly drawn up.

Looking at 2011 with fresh eyes, this is the year where you can make some important changes. By making small changes in your personal and financial life now, you can reap the benefits for the entire year, and for years to come.

Michael Kalscheur, CFP®, is a Senior Financial Consultant at Castle Wealth Advisors, LLC. Castle specializes in helping families and closely-held business owners with strategies to protect and transition family assets from one generation to the next. Castle’s senior partners also work with clients throughout the country in making logical decisions to help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or contact Michael directly at .