NEW YEAR'S RESOLUTION TO ORGANIZE PERSONAL FINANCES

From Deloitte & Touche Review, January 6, 1997

The beginning of a new year is a good time to review your financial situation. If gaining control over personal finances or establishing a personal financial plan are among your New Year's resolutions, consider the following.

Setting Financial Goals. The first step to building or maintaining a financial plan is to set or review goals. Begin by listing and quantifying your financial goals, and then rank them in order of importance. Set both long- and short-term goals. If you have previously established financial goals, consider whether they are still appropriate, update the goals for your current situation, and assess your progress in attaining your objectives.

Financial Status. Prepare or update your personal net worth statement. Such a statement lists assets, subtracts liabilities, and computes your remaining "net worth." The statement functions as a "financial scoreboard" by quantifying progress in meeting goals and highlighting problem areas.

Budgeting. Estimate income and recurring expenses by month for the coming year. Include any major purchases/expenditures (e.g., tuition, furniture, appliances, vacations). Adopt a "pay yourself first" savings philosophy. Include your monthly savings goal as an expense item. Do not make the budget overly detailed. Personal budgets are most effective when they are short and simple. There are several good personal finance software packages that will help you set a budget and better understand how your money is spent.

Tax Withholdings. Adjust tax withholding amounts if too much or too little was withheld in 1996. To change withholdings on wages, submit a new Form W-4 to your employer.

Debt Management. Review the terms (e.g., interest rate, maturity date) of outstanding loans and consumer debt. Identify opportunities to refinance or replace existing debt at more favorable terms. Compare interest rates on an after-tax basis. Even a one percent reduction in the interest rate can produce considerable savings when compounded over the life of a loan. Replacing nondeductible consumer debt (e.g., automobile loans, credit-card debt) with a tax-deductible home-equity loan could yield significant
savings.

Retirement Savings. Evaluate the adequacy of your retirement savings. Consider the effects of inflation on retirement funds. Sometimes the best way to increase your savings rate is to earmark a portion of any salary increase for retirement savings. If you plan to contribute to an IRA, make the contribution(s) as early in the year as possible so as to maximize tax-deferred growth.

Investment Allocation. A personal financial plan includes an asset allocation objective--a plan to diversify by distributing money among different groups of assets (e.g., large company stocks, international equities, long-term bonds). Over time the allocation of an investment portfolio may drift away from your original asset diversification objective (particularly in times of strong stock market performance). Reassess your allocation plan, and make adjustments to the portfolio as appropriate.

Keeping and Safeguarding Records. Minimizing taxes begins with a good recordkeeping system that organizes tax receipts and maintains a list of tax-related expenses. Tax records and receipts should be kept for at least three years after the date the relevant tax return is filed. Consider keeping these documents for six years because tax authorities may be able to question returns that are six years old if large tax adjustments are contemplated. A safe deposit box or a fireproof home safe is essential to securing personal papers/ records that may be difficult or impossible to replace. Additionally, your executor should know the location of key documents (e.g., list of assets, insurance policies, will) and the names of your attorney.

Property Insurance. Review property insurance contracts (e.g., homeowners, automobile) for gaps in coverage. Consider whether policy limits are adequate to cover the appraised value of insured items. Review policy deductibles--you may be able to obtain more cost effective coverage by increasing or reducing the deductible amount. Also inquire about any discounts that are offered (e.g., a security system for your home or car could reduce insurance premiums).

Estate Planning. An estate plan should be reviewed periodically and when your personal or family circumstances change. All or some of the following documents are part of an estate plan:

* Will--Provides for the disposition of an estate through a court supervised process known as probate.

* Durable Power of Attorney--Provides for the management of assets in the event of disability by naming someone to act as an attorney-in-fact.

* Living Will or Durable Power of Attorney for Health Care--Provides for your wishes concerning extraordinary life support measures in the event of terminal illness or injury.

* Living or Revocable Trust--Helps to minimize or avoid costs or delays that are often associated with the probate process.

A careful review of how your property is titled is an important aspect of estate planning. Many estate plans have been rendered ineffective because of the manner in which property was titled.

If you do not have an estate plan, discuss your situation with a financial advisor. When an estate plan is not in place, the intestate laws of your state will determine how the estate is handled, and it is not likely that intestate laws will result in your estate being resolved as you would prefer.

These are some thoughts to consider when organizing personal finances. Your financial advisor can provide additional information and should
be consulted before any
action is taken. *