Looking Forward by Looking Back
By: Joseph Hearn; Source: AARP Bulletin Date Posted: 2006-01-12 10:29:00-05:00
Every year about this time we are inundated with exhortations to quit smoking, lose weight and save more money. While those are all commendable resolutions, a review of the headlines of 2005 may encourage you to consider some alternatives for 2006. Best of all, none of these goals will require a 5 a.m. trip to the gym. Below are eight timely financial resolutions that make sense in today's economic environment.
1 Buy a hybrid. As world events push gas prices higher, the case for hybrid cars becomes stronger. If you're tired of spending $80 to $90 to fill up your SUV, consider a hybrid. Better gas mileage isn't the only benefit. Here are four more:
- Several states offer tax breaks (Colorado, Louisiana, Massachusetts and New York, among others).
- Some states, including Arizona, California, Florida and Virginia, let you use the car pool-only lane; check with your state's Department of Motor Vehicles.
- The federal government is offering fuel efficiency-based tax credits as high as $3,400 to buyers of hybrids.
- Your company may subsidize hybrid purchases by employees — Google, Timberland and Patagonia are just three of the companies that do.
2 Keep your heat. For many, pain at the pump was just the beginning—home heating bills have skyrocketed. You can hold on to some of that expensive heat by adding insulation in your attic and sealing air leaks around windows and doors. If you have the money and intend to stay in your house awhile, it might make sense for you to upgrade to a more efficient furnace.
3 Shop interest rates. In case you've missed it, Alan Greenspan and company have raised interest rates 13 times since June 2004. If a big portion of your savings is in interest-bearing accounts, shop around. The interest rate that banks pay on money markets and CDs can vary significantly, and, depending on the size of your nest egg, a small increase in the rate you're earning could mean a big increase in your monthly income. For example, a recent comparison at www.bankrate.com of one-year CD rates at banks in Miami showed a difference of almost 4 percent between the highest and lowest published rate.
4 Check your credit. By September 2005 all consumers were eligible to receive a free copy of their credit report. Checking your report annually helps you catch mistakes and become aware of attempted identity theft. For a free report, go to www.annualcreditreport.com or call (877) 322-8228.
5 Complete your estate plan. The Terri Schiavo case highlighted the importance of having a health care directive. Make sure the document spells out your wishes clearly. You should also have a will and a designated power of attorney for financial decisions.
6 Evaluate your home equity. One way to tap into the real estate boom is to downsize and invest the proceeds from the sale of your home. Another is to consider a reverse mortgage, which allows homeowners to get cash from their home while still living there. Only when the owner dies or moves out does the lender have to be repaid, usually through the sale of the house. A reverse mortgage is not for everyone—the up-front costs can make it an expensive way to borrow money, so consult a trusted adviser before you take action. For more information, check out AARP.org.
7 Investigate flood insurance. The 2005 hurricane season was a reminder that the average homeowner's policy may be full of fine print regarding flood damage. Floods and flash floods happen in all 50 states. If you're considering flood insurance, visit www.floodsmart.gov. It takes 30 days for a policy to take effect, so don't wait until the storm is a swirl on your TV screen.
8 Fly. Several major U.S. airlines filed for bankruptcy last year. This is largely due to high fuel and personnel costs as well as stiff competition from discounters like Southwest and JetBlue. While keeping fares low in order to compete may be bad for the airlines, it's good for the traveler, which could be you.
Oh, and one other thing. It would probably be a good idea to save more money and drop a few pounds.
Joseph Hearn, of Omaha, Neb., is a co-author of If Something Happens to Me (Provisio Publishing, 2004), a workbook for financial and legal affairs.
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