The winding down of sun and fun marks a good time to check on your financial health. Here are five important tactics for the rest of summer.
1. Create your personal balance sheet. Easier than you think: On the left side of a piece of paper write “Assets” and on the right side write “Debt.” On the bottom, write “What’s Left.”
Under assets, list the value of your possessions such as your 401(k) retirement plan or individual retirement account, your checking account and the worth of your home. Under debts, list what you owe (loans, credit card balances and so forth).
Add up the assets and the debts separately. If your assets are bigger than your debts, put the difference under “What’s Left.” Your goal over time: grow the assets column and decrease your debts.
If you have nothing right now in the “What’s Left” column, don’t panic. Acknowledging room for improvement is the first step toward your financial success.
2. Understand your 401(k). With pensions now as rare as a smog-free day in Los Angeles, your 401(k) likely becomes your largest asset for the golden years.
Three primary components make up your retirement plan: your contribution rate, your allocation and your specific investments. You also want to determine whether your company offers a Roth 401(k) option, which can provide you with tax-free income in retirement.
The best way to understand your 401(k)? Call your plan provider. Most employees usually underutilize this (typically) free service, yet plan companies almost always maintain advisors on staff to assist you, the plan participant, with options.
3. Refinance your high-interest debt? Interest rates hover close to historic lows. If you pay a high interest rate on your mortgage, car loan or even student debt, you can explore refinancing.
Many financial institutions happily help you refinance – with hidden costs. Make sure you understand how much lowering your rate costs. If you find high upfront fees, factor those into your decision. Going from a 4.85% mortgage interest rate to a 4.25% rate sounds appealing until the bank asks you to pony up $3,000 in fees.
You enjoy more options when refinancing than you might realize; ask your certified public accountant, financial advisor or attorney for help.
4. Curb dumb, impulsive spending. I recommend the “72-hour Test” from fellow financial planner Carl Richards. Essentially, every time you are about to make a large purchase, stop and think about it for 72 hours. If after that time you still think you need to spend the money, go ahead.
Often you find that the item you thought was important a few days before was just an impulse buy that you really don’t need.
5. Ignore investment chatter. When at a Labor Day barbecue, on vacation or playing golf with buddies, ignore unsolicited investment advice that comes your way.
Friends, strangers and even your family probably don’t know your financial situation or your specific goals. What worked for them may not work for you. Don’t forget too that folks quickly brag about their jackpot investments but turn quieter about investments that lost them a lot of money.
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Grant Webster, CFP, is a Senior Wealth Manager at AKT Wealth Advisors, LP in San Diego.
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