holiday season provides an excuse to eat too much
and exercise too little. So by the time New Year's
rolls around, many Americans return to the health
club, resolving to stick to an exercise regime.
But our physiques aren't the only "assets" that
could benefit from exercising extra diligence in the
new year. Many people have flabby spending habits.
Here are five ways to trim the fat and add
discipline to your personal finances in 2014:
1. Refinance Your Mortgage
Last September, the Federal Reserve announced plans
to keep the Fed Funds rate at "exceptionally low
levels" at least through the end of 2015. This is
good news if you've been meaning to refinance your
mortgage but haven't started the process yet.
Most banks reserve their best rates to people with
excellent credit scores who have at least 20 percent
equity invested in their homes. You can lower your
rate further by reducing its term (20-year loans are
generally cheaper than 30-year loans) and providing
a lump-sum payment towards equity at closing.
Adjustable rate loans usually have lower interest
rates, too. But, beware. These can be risky over the
long run, because your mortgage rate can reset
significantly higher as inflation rises.
Whether refinancing makes sense depends on more than
the differential between your home's existing
interest rate and today's prevailing interest rate.
It also depends on how long you plan to live in your
home, the closing costs and the term of your new
2. Evaluate Your Insurance Coverage
Take stock of your insurance needs, including:
Life and Disability
Flood and Disaster
Medical and Dental
You might need more or less coverage (or higher or
lower deductibles) than last year, as life
situations evolve. Employer-provided policies
usually can be modified at the company's fiscal
year-end (or if your life situation changes).
Consider shopping around now for other types of
coverage (or if you're self-employed).
Although it's easier to maintain the status quo,
don't automatically renew without obtaining some
competing bids. Often, bundling all your policies
with one provider can lower costs.
Life insurance is a product that many people
purchase -- and then like to forget about. Every
year, ask yourself whether existing coverage
(combined with your savings and investments) will
give your loved ones enough cash for a decent
lifestyle if you should die prematurely.
One rule of thumb for a "primary breadwinner" is
that coverage should equal to six to ten times
income. For example, if you have income of $75,000,
purchase $450,000 to $750,000 of death benefits. You
may want to be on the higher end of this range (or
above), if you have young children, dependents with
special needs, large debts or other special
3. Cut Extraneous Spending
Take a hard look at your monthly expenses to decide
what you can realistically eliminate. Many vendors
-- such as health clubs, magazines, online greeting
card companies, anti-wrinkle (or acne) creams, and
anti-virus software -- automatically renew monthly
or annual memberships in accordance with the fine
print on the original contract. Consumers who lose
interest in these products are often too preoccupied
to cancel them. Doing so can save hundreds of
dollars over a year.
Also, compute how much you spend on dining out.
Yearly totals might be sobering!
Other extraneous items are a matter of common sense
and changing times. For instance, do you still need
a land line at home, or will a cell phone suffice?
Are you really watching all premium cable channels
(that may have started out free!), or could you
downgrade your cable services? Often bundling cable,
phone, internet and cell services can result in
4. Start College Savings Programs
If you've got children (or grandchildren), the
rising cost of college is probably a concern. The
average annual cost of at a four-year
institution for the 2013-2013 academic year ranged
from $18,391 to $40,917, depending on whether the
student is in-state or out of state and whether the
institution is public or private, according to the
College Board. This includes tuition, room, board
and fees. These costs can be significantly higher at
some private colleges.
Who's going to pay for college in your family -- and
how? Fortunately, there are many college savings
options, such as:
Each offers state and federal tax breaks, risks
and rewards, restrictions, and limitations. For more
information, consult with your financial
professional. The sooner you start saving for
college, the more affordable it will be.
5. Make or Update a Formal Estate Plan
Begin estate planning by inventorying your assets,
Personal assets -- such as jewelry and artwork --
also can possess significant monetary (and
sentimental) value. The difference between your
assets and liabilities is your net taxable estate.
In 2014, you can transfer as much as $5.34 million
of assets without incurring federal gift, estate or
generation skipping transfer (GST) tax. That doesn't
include the annual gift tax exclusion of $14,000 per
year per donor and recipient. Estate tax is
calculated on the net value of the decedent's assets
as of the date of death -- or on the alternate
valuation date, which is six months later.
Federal estate tax rates are currently as high as 40
percent. Quite a few states also impose estate or
inheritance tax at a lower threshold (and possibly
with a different lifetime gift exemption or
portability provision) than the federal government
In addition to outright gifts, you can use other
estate planning tools -- such as qualified
terminable interest property (QTIP) trusts, Crummey
trusts and family limited partnerships -- to
minimize estate tax. They may also achieve other
estate planning objectives, such as professional
asset management, protection against creditors'
claims and preservation of the portability provision
in generation-skipping transfers and remarriages.
Financial and legal advisers can help create the
optimal estate plan for your personal needs. Contact
yours and start 2014 off right!
For more information, please contact
Boris Benic, CPA,
or click here to email Boris.
He would be happy to address any questions you may