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The end of the year is a time for renewal and resolutions. That includes reviewing your financial situation to make sure you’re achieving your goals for paying down debt, saving for the future and ultimately owning your home. This checklist will help you organize your finances for the year ahead.
YOUR DEBT
Review your credit card rates. Cut up any that carry big interest charges and consider getting by with just one or two widely accepted cards. You should also make it a priority to reduce your spending on credit in the new year.
Consolidate your debt. If you are carrying balances on several credit cards or consumer loans, investigate your options for debt consolidation. Could you save by consolidating several high-interest debts into one lower-interest personal or home equity loan?
YOUR SAVINGS
Review your retirement savings. Check your statements to ensure that you are on track to achieve your goals. Are your current investments performing? Are you maxing out your 401(k) contributions? At best, try to at least ensure that you are taking full advantage of any employer matching that may be available to you.
Look at your mix of investments. The end of the year is good time to review your investments (stocks, bonds, CDs) and rebalance where necessary. By diversifying your holdings, you limit the amount of risk you face in the changing market.
Plan ahead for a big purchase. If you are planning a big purchase in the coming year, now’s the time to start saving. Figure out how much you can afford to set aside each month, and set up an automatic withdrawal plan so you won’t be tempted to spend. If you don’t already have one, consider opening a high-yield savings account so you’ll earn more interest on your money.
YOUR MORTGAGE
Check your mortgage rate. Dig out your mortgage documents to see what interest rate you’re currently being charged. If rates have fallen since you originally took out the loan, you may be able to refinance and get a better rate. Or, if you have an adjustable-rate mortgage (ARM) take a minute to figure out how much your payment could increase at the next reset. Our adjustable-rate mortgage calculator can help.
Assess your PMI premiums. If you are paying PMI premiums, calculate your home equity to see if you still need to be incurring this added expense. Lenders are obliged to cancel PMI (on mortgages signed on or after July 29, 1999) when you reach 22 percent equity in your home, provided your payments are current. You also have the right to request cancellation of PMI when you have paid down your mortgage to the point where you reach 20 percent equity in your home. Or, if your home equity has increased because real estate values in your neighborhood have climbed, you may have a case for early private mortgage insurance cancellation as well. Your lender will likely ask you to pay for an approved appraiser to confirm the new value of your home.
Review your mortgage terms. Check your mortgage documents and make sure you understand the terms of your loan. If you’re confused by any of the wording, ask your lender to explain it, so you can avoid any future unpleasant surprises..
YOUR INSURANCE AND TAXES
Look over your homeowner’s policy. If you have made any major purchases or done extensive renovations on your house, review your homeowner’s policy and make certain that you have enough coverage.
Review your life insurance policies. Look over insurance documents to make sure you’re not overinsured or underinsured. Once your children leave home, for example, you may no longer need as much coverage as you did when they were dependents.
Make sure you receive a Mortgage Interest Statement (Form 1098). This form, which indicates the amount of interest you have paid on an approved home loan, should come from your lender. You may be able to claim this amount on your tax return to reduce the amount you owe the IRS.
Published on November 12, 2007