Week 1 tips ¦ Week 2 tips ¦ Week 3 tips ¦ Week 4 tips
Day 23: Get your estate plan in gear
Degree of difficulty: Moderate
I firmly believe that it needn't be difficult to tackle many important financial-planning tasks on your own. But one area where I wouldn't advise a DIY approach is in the realm of estate planning. Do-it-yourself wills and other estate-planning documents abound on the web, but estate planning is complicated, and the consequences of mismanaging it are great. This is one area where paying for professional advice can be money well spent.
That's not to say you won't have some involvement, however. Before you visit with an estate-planning solicitor, take stock of your major assets, including investments, property, and business interests. (If you took stock of your net worth or put together a master directory--Days 4 and 5--you'll be well on your way.)
Also give some thought to whom you'd like to inherit your assets, as well as the key individuals you would like to make decisions on your behalf after you become incapacitated or die. Parents of minor children should also consider whom they'd like to look after their children if they become unable to do so. This article covers many of the most important aspects of designating beneficiaries.
Day 24: Put in place a system for tracking cost basis
Degree of difficulty: Easy to Moderate
When it comes to matters of money and investing, my mantra is focus on what you can control. In the "can't control" column are a grab bag of macroeconomic factors: interest rates, the level of inflation, and the direction of pound. On the flipside, you have a lot more control over your own savings rate, the composition of your portfolio, and even the amount of investment-related taxes you pay.
Maxing out your contributions to available tax-sheltered vehicles (Day 16 in our financial fitness regimen) is just one way you can reduce the State's claim to your investment returns. One other lever is selling your losing holdings to offset taxable capital gains from winning holdings in your portfolio.
Key to executing this strategy is keeping good record of your cost basis--the price you paid for individual securities in your taxable portfolio, including commissions and other expenses. The more precise your record-keeping, the better you can take advantage of more sophisticated tax-loss selling methods, such as specific share identification. Brokerage and fund firms, as well as financial software packages, have begun providing increasingly sophisticated tools for tracking your cost basis.
But setting up your own tracking system isn't difficult. Simply get in the habit of recording the name and number of shares you purchased, as well as the pound amount and the date on which you purchased them. (Don't forget reinvested dividends.)
The Government Web site's Money pages provide further details on Capital Gains Tax and offsetting losses.
Day 25: Set the date for your annual check-up
Degree of difficulty: Easy
If you've have been following along for the last few weeks, you're well on your way to getting in the best financial shape of your life. Recent tips have focused on fine-tuning your retirement plan and putting in place systems to keep your investments in peak operating condition.
Investors often make the mistake of checking up on their portfolios too frequently or, worse yet, only after big market moves, when they're most inclined to make rash decisions. To help avoid that pitfall, schedule regular check-ups in advance. For most people, one comprehensive portfolio review per year is plenty, and much better than obsessing on a daily basis.
Year-end--ideally around November, before the holiday season gears up--is a good time to conduct your annual portfolio review so you're all set before the new year kicks in. Morningstar's Portfolio Manager makes it easy to monitor your portfolio on an ongoing basis. You can take a peek at your portfolio's performance as you see fit but if you've set up a diversified portfolio that meshes with your long-term goals, there shouldn't be any need to conduct a full check up more than once a year--the best investing plan is to stay the course, invest regularly, and resist the temptation to panic when (not if) the market stumbles. When conducting your annual review, you may find that your portfolio has become skewed towards areas of the market that have performed well over the past 12 months and is now underweight in areas that have lagged. Only rebalance if your allocations are significantly off your original risk profile.
