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Actions
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Develop a
financial reserve. Being prepared (with 3 to 6 month's living
expenses) can help relieve some of the financial anxiety we often
feel.
Consider an
automatic savings plan by having a specific amount deposited into a savings
account from each paycheck. The fund will grow and you may end up
not even missing what is saved each month.
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Get
rid of high interest rate credit card debt. Interest rates on
some credit cards are high. If you are carrying over balances and
paying interest, cut down on your card use, pay more than the required
monthly minimum and eliminate this expense. Also, you may want to
consider a different credit card that offers a lower rate.
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Develop
a household budget. This is often one of the most dreaded parts
to being financially responsible. To make the process less dreaded,
call it a "household spending analysis." Determining how
you spend your money will probably lead to identifying how to reduce
some expenses.
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Save for
retirement. Start with your employer's retirement plan. Review
the details to ensure you get as much of the "company match"
as possible.
After considering
your employer's plan, consider contributions to an IRA or Roth IRA.
The tax deferred compounding aspects of these plans enable your
funds to grow faster.
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Be sensitive
to taxes. No one likes to pay more income tax than absolutely
necessary.
Be aware of
the opportunity of deducting certain items like mortgage interest,
state and local taxes, charitable contributions and certain medical
expenses. Also, consider the preferential tax treatment from capital
gains on your investments.
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Have a sensible
investment strategy. Start with an asset allocation goal that
divides your investments into equity, fixed income and cash investment
categories.
Your initial
asset allocation should be based on your time horizon (age) and
how you feel about taking risks. The younger you are and the more
comfortable you feel with risk, allocating a larger portion of your
funds to equities may help you earn the higher returns of stocks
that have historically been available.
Remember that
all investments involve risk and that past performance is no guarantee
of future results.
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Be adequately
protected. Insurance provides protection against the unknown.
Make sure your
possessions, life and health are adequately insured.
Examine the
level of deductibles and the coverage amounts to get the protection
you need at the lowest cost.
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Take care
of estate planning. Having a well thought out will can ensure
that your assets are distributed as you desire upon your death and
can help reduce any estate taxes that may be due. But estate planning
is more than reducing taxes.
Your estate
plan should include documents that designate someone to make financial
decisions if you are incapable of making them (durable power of
attorney for finances) and designate someone to make medical
decisions if you are incapacitated (durable power of attorney for
health care).
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Finally,
organize your records. Having a system for handling monthly
expenses can reduce the stress and time needed to handle your everyday
finances.
Using a system
to keep track of investment and tax records will make every tax
season less "taxing."
Keep other important
information organized. Having to hunt for the name of your insurance
agent, an account number, a frequent flyer number or any other bit
of information can be a waste of time.
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