With the New Year upon us, now is a good time to review your finances to ensure you are still on track with your financial goals.
Check the targeted allocation of your financial portfolio. Is your 401(k) still allocated with the proper stocks, bonds, and cash allocation you initially intended? Last year was a record year as far as the stock market was concerned. Due to the increased value of stocks in 2013, your 401(k) allocation may be too stock heavy now.
Review the allocation balance of your stocks vs. bonds vs. cash. If the allocation is too stock-heavy, move some of your money from stocks into either bonds or cash. Doing this not only keeps your 401(k) allocated the way you intended, but will also help cushion any financial losses you may face if the market sputters in the beginning of 2014. After all, what goes up, always comes down and if you properly reallocate your assets now, you will avoid a potential big loss later in the year.
With each passing year, the kids are getting closer and closer to college. How is your child’s college fund allocated?
When you initially opened your child’s college fund, odds are you invested heavily in stocks to get a higher return. As your child gets closer to attending college, be sure you are reviewing your allocation dispersal.
You need to be sure that as your child ages, their college fund becomes less risky and more conservative. If your child is within five years of attending college, you should not be investing any new money in stocks, and you should be moving existing money out of stocks and into cash and bonds.
If the market crashes and your child’s college fund is heavily allocated in stocks, you run the risk of losing everything you saved for your child’s education. Review your college accounts now, before it’s too late.
Reviewing your beneficiary designations is an important step that should not be overlooked. Be sure your beneficiary information is up-to-date, especially if you have had a recent life-changing event like a divorce, second marriage, or the death of a spouse.
It is important that all beneficiary information is updated including beneficiary’s names, social security numbers, and relationship. If you are unsure if your beneficiary information is updated, contact your financial institution.
Rainy Day Funds
Having a six-month rainy day cushion is an important allocation of cash to have available. Rainy day funds help protect you if you ever lose your job, or if you have a major repair needed on your house.
Having six months of cash saved in a money market will allow you some flexibility if you are ever faced with a situation where you need immediate cash.
Review your current rainy day allocation. Did you borrow against it last year and now need to replenish the funds? Have you just never saved toward a rainy day fund?
Be smart and get this fund updated to meet six months’ worth of salary.
401(k) Contribution Percentage
A lot changes in a year. Maybe the kids are all off to college now and you don’t need as much for the grocery bill now that they are moved out. Save some of that extra dough in your 401(k).
Or maybe you are now expecting a new little one in the house and need to find some extra money to feed an additional mouth. You might be able to decrease that 401(k) contribution that you have been maxing out the past few years.