7) Build an emergency fund. There are always those expenses we can’t plan for like the roof needing repairs or the car breaking down and not all of these costs are covered by insurance. That’s why it’s so important to have some cash somewhere safe and accessible like a savings account or money market fund. Try to save at least 3- 6 months worth of necessary expenses in case you or your spouse were to lose your job. The riskier your income is, the more you should have in savings.
8 ) See if you can refinance your debt. One expense that no one likes to pay is interest. With rates near record lows, this can be a great time to see if you can consolidate student loans or refinance your mortgage to a low, fixed rate before rates eventually start moving up. If you were able to improve your credit score, you might also qualify for rates you weren’t able to in the past.
9) Pay down bad debt. There are some debts, like credit cards, that you generally can’t permanently refinance below what you can expect to earn by investing your money. In this case, your best bet is to try to pay them down aggressively by focusing all the extra payments on the balances with the highest interest rates. As one debt is paid off, you’d then apply those payments to the next highest interest rate debt.
10) Get on track for retirement. If your employer offers a retirement plan with a match, try to contribute at least enough to get that full match so you don’t leave any free money on the table. You should also be able to contribute the extra 2% of income from the recently extended payroll tax cut. Since it’s temporary, you don’t want to get used to spending it. After that, you can calculate how much more you need to save (especially after all the market turmoil over the last few years) with this retirement estimator. You can then get additional tax benefits by contributing more to your employer’s plan, a traditional IRA, and/or a Roth IRA. Don’t forget that you will be able to contribute more to your 401(k) next year and that you have until April 15th to contribute to IRAs for 2011.
11) Consider saving for education. Your kids can borrow for school but there’s no financial aid for retirement so that should be your first priority. But if your retirement needs are on track and you’d like to put some money away for future education expenses, look into various tax-advantaged vehicles like state 529 plans, Coverdell Education Savings Accounts, and U.S. savings bonds to see which best fits your needs.
12) Make sure your investment portfolio is properly diversified. In addition to saving money for retirement, education, and perhaps other goals, you’ll still need to decide how that money is invested. Rather than try to predict the market, you can use this risk tolerance questionnaire and asset allocation worksheet for guidelines on how much to invest in stocks, bonds, and cash based on how long the money will be invested for your goals and how comfortable you are with the ups and downs of the market. You would then re-balance your portfolio periodically to keep it in line with your strategy. This can also help you resist the temptation to buy stocks when they’re doing well (priced relatively high) and sell stocks when they’re doing poorly (priced relatively low).
There are quite a few steps here to choose from and not all of them will necessarily apply to you but taking even just one or two of these steps can help put you in a better financial position.
To see the whole article that includes some handy tracking tools go here.