12/14/2012 6:09 PM ET|
Year-end money moves to avoid
Insurance is another consideration. The chances that you'll ever need the coverage provided by the Securities Investor Protection Corp. are slim. SIPC pays back investors if a brokerage goes broke or if securities are stolen by a broker. If a failed firm can't be merged with another brokerage, SIPC divides up the broker's remaining assets among customers and then uses its own funds -- up to $500,000 per account, including a maximum $250,000 for cash claims. If your claim exceeds those limits, which is rare, the broker often has insurance that will make you whole. Still, some people are uncomfortable keeping more than $500,000 at any one brokerage firm. If you have substantial assets, you may want to spread them around.
Simplify your investments. You may need to keep your money in different investment accounts, but you'd be smart to seek simplicity when choosing your actual investments. You can eliminate the hassles of asset allocation and re-balancing by choosing so-called lifestyle or target-date maturity funds. These funds offer broad diversification and regular re-balancing so that your portfolio stays in tune with your long-term goals. The best such funds don't try to beat the markets, since most funds that attempt to do so fail miserably. Instead, they use low-cost index and exchange-traded funds to match the market returns. If you don't have access to good-quality lifestyle or target-date funds, look for a good balanced fund (60% stocks, 40% bonds) or build a simple portfolio using low-cost index funds and then re-balance back to your target asset allocations once a year.
Set up savings "buckets." When I had a single savings account, it was hard for me to keep track of how much of the money was earmarked for various purposes. If I had an unexpected car repair, would there be enough left to pay our property taxes when they're due, plus cover our insurance premiums and our holiday splurge? Now each goal has its own labeled savings account at an online bank that doesn't have minimum balance requirements or charge monthly fees. Each month, money is automatically transferred from our joint checking account at a brick-and-mortar bank into each of these savings buckets. Every large, irregular expense -- from vacations to car repairs -- has its own account, and I can tell at a glance where we stand. If a car or home repair exceeds the amount we have saved, I can shift money from our emergency fund or cut our spending until the bucket is refilled. The system sounds more complicated than maintaining one savings account. In fact, it has greatly simplified our lives, because I know the big expenses are covered.
Automate your payments. If paper checks are still a big part of your financial life, explore the advantages of electronic banking. Direct deposit means no more standing in line at banks to cash your paycheck (plus fewer opportunities for thieves to steal or alter your check). Electronic bill payment typically is safer and more secure than sending checks through the mail. Plus, many bills can be automated. You have several choices: setting up recurring payments through your bank's bill payment system (a good option if the bill amount is the same every month), having bills charged to a credit card or authorizing billers to take the money directly from your checking account. Even if you're nervous about ceding control of other bills, you should make sure that minimum payments to credit cards and loans are made automatically, so you don't run the risk of missing a payment and damaging your credit scores.
Rethink consumerism. Buying less leaves more money in your pocket for saving and investing. Buying less also means less hassle. The less stuff you buy, the less stuff you have to maintain, insure, repair and replace or donate when you're done with it. Breaking the habit of shopping and spending can be a surprisingly powerful way to simplify your life.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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