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Once you've finished with your tax planning for the year,
and your return is safely on its way to the IRS, you're at an excellent point
for a quick financial check-up. Your tax return is handy, as a quick snapshot of
your financial situation, and the figures are recent and accurate. Take a few
minutes to consider these questions: |
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1. Have you determined your short- and long-term
financial goals? |
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Have you consistently reviewed and updated them for any changes? |
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2. Are you saving and investing sufficient sums to fund
your short- and long-term goals? |
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By defining goals that are time and dollar specific, you can regularly assess if
you are on track to reach them. |
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3. Are you making the best use of tax-deferred savings
plans, such as IRAs, 401(k)s, and Keoghs? |
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Are you contributing the maximum you can? Did you make plan investment choices
consistent with your investment time frame and risk tolerance? Alternatively,
are you satisfied that you have worked out the most appropriate way to take
withdrawals for both yourself and your designated beneficiaries, with a careful
balancing of income tax and estate tax considerations? |
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4. If you are an employee, are you getting the optimum
from your employee benefits? |
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Do you understand and use any flexible spending accounts that you may be
eligible for? Have you developed a strategy for exercising your employer stock
options and using any deferred compensation plans? |
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5. If you are concerned about paying for a child's
education, are you saving and spending in the most appropriate ways? |
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Are you using tax-deferred savings, tax-favored loans, and tax credits? Are you
striking an appropriate balance between saving in the child's name (either
outright or in trusts) and saving in your own accounts? |
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6. Do you have an "emergency fund?" |
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Many experts recommend that you have the equivalent of three to six month's
take-home pay in an account where you can get at it quickly. An emergency fund
gives you cash to weather a squall or two without having to disturb your
investment portfolio or sell off any other assets. |
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7. Have you checked the asset allocation of your
portfolio lately? |
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Run-ups and downturns in the market can each disrupt the allocation of your
investments, leaving you with more or less in any one asset class than you
consider optimal. Should you be thinking about tax-free or taxable fixed income
securities, based on your marginal tax rate and risk tolerance? |
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8. Do you have adequate insurance? |
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Adequate life insurance (to protect your family if you die unexpectedly)?
Adequate disability insurance (what if you or your spouse couldn't work for an
extended period of time)? Appropriate household and automobile insurance? Should
you be thinking about an umbrella policy? |
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9. Do you have appropriate legal documents in place? |
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An up-to-date will? Trusts for you and/or your spouse and other heirs? A living
will or other health care directives? A durable power of attorney (for managing
your assets if you can't)? Have you told family members or trusted friends where
they can find these documents? |
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10. Is your credit under good control? |
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Is the interest rate on your mortgage
the best you can do, or should you be applying for a lower
rate? Should you be shopping for a credit card with a lower
interest rate, or perhaps for a home equity loan? |
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11. Are you maximizing your cash flow through income
tax strategies? |
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How are you funding charitable contributions -- with cash or securities? Do you
prepay itemized deductions to accelerate the tax benefit? |
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12. If you own your own business, do you have a plan
for smoothly passing on that business to family members or trusted employees? |
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Are you aware of and planning for any income and related estate taxes? Are you
making optimum use of insurance to safeguard your transition plans? |
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13. Have there been significant changes in your family
this year? |
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Births, deaths, graduations, engagements, and the beginning and ending of
marriages can all have multifaceted effects on your financial plans. Consider
their effect on your own situation. You may want to start a college fund for a
new baby, or make a plan for investing assets you've inherited, or make
provision for your daughter's wedding next summer. On the other hand, if you
have recently divorced, you will want to review the beneficiary designations on
your insurance policies and retirement plans. |
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