Here's Part 2 of the month-by-month program to get your finances in order during the new year. Each step will probably take you less than an hour per month, but together they can lead to better investing, more effective financial planning and smarter saving in 2011.
July: Check your credit reports
It takes only a few minutes, but checking your credit reports allows you to find errors that could hurt your credit rating. It also can help spot identity theft.
To get your reports, go to http://www.annualcreditreport.com and fill in the required information. The three major credit agencies each generate credit reports — you have the right to get free copies of these reports once every 12 months.
When you have the reports, look for three things: unfamiliar home addresses listed for you, unfamiliar accounts and mistakes.
The unfamiliar addresses and accounts are signs of possible identity theft. Go back to http://www.annualcreditreport.com and click on the "fraud alert" link. This will give you information about reporting the fraud and freezing your files to help prevent thieves from getting credit cards or loans in your name from that point on.
Mistakes can include a listed debt you paid off long ago or a bill assigned to you in error. These mistakes, if allowed to stand, could lower your credit score and cost you money when you apply for credit.
To correct mistakes, write in the margins of the reports near inaccurate items to explain what's wrong — i.e. "this card was paid off in June of 2009." Then make copies of the reports for yourself and follow instructions for sending the originals back to the agencies.
Ask the reporting companies to send you copies of your corrected files as soon as the errors are fixed. Check back if you haven't heard from them in a month.
August: Round up your mortgage payment
It's simple and hugely beneficial, but few people know just how much they could save by simply rounding up their monthly mortgage payment. The savings depend on your loan amount, interest rate and how much extra you're paying, of course, but let's look at a hypothetical example.
If you owed $200,000 on a 30-year, fixed-rate mortgage at 5%, your monthly payment would be $1,073.64. If you rounded the payment up to $1,100 a month, you'd repay your loan after 341 months instead of 360 and save yourself a tidy $11,427.45 in interest, according to the "Should I Pay Extra" calculator at MortgageGrader.com.
September: Estimate your retirement needs
Do you know whether you're on track to finance your eventual retirement? If you're like most people, you haven't a clue.
Admittedly some guesswork is required. You don't really know, for example, what rate of return you're going to earn each year. And the earlier you start planning, the less certain you can be about whether you'll have a company pension and how much Social Security will pay.
The easiest way to estimate retirement needs is to use the calculator at Kiplinger's Personal Finance magazine's online site at http://www.kiplinger.com/tools/retirement-savings-calculator.html. There are lots of online retirement calculators, but this one allows you to plug in income from both Social Security and pensions.
Why do retirement calculations in September? Because open enrollment season begins in October at most companies. That may be the one time each year you can tell your employer to change the amount you're saving through the company's defined contribution retirement plan such as a 401(k) account.
October: Study your benefit elections
Open enrollment is also when you get to choose your health insurance plan and sign up for so-called tax saver accounts. Making benefit elections wisely is becoming increasingly important because health insurance plans are changing in response to last year's healthcare overhaul.
Most plan sponsors help consumers with the math by offering electronic worksheets. You plug in your current and projected medical expenses and the worksheet recommends the most cost-effective plan.
If you have children in day care or unreimbursed medical bills, also consider contributing to tax saver accounts. These accounts allow you to save on a pretax basis for bills you're certain to incur.
November: Consider your heirs
It doesn't matter how old you are: If you have children, you need a will. If you have small children, you need life insurance. If you have older children, you might want a living trust.
If you have small children living at home, your will should name guardians — both primary, such as your spouse, and secondary, such as a close friend or relative, in case something happens to both parents. If your needs and family situation are simple, you can write holographic wills. Simply state your intentions in your own handwriting and sign and date the document. Or you can buy a do-it-yourself will software program such as Nolo's Quicken WillMaker Plus.
If you're older or have a blended family, complicated finances or troubled children, hire a skilled family lawyer.
Also make sure you have adequate assets or life insurance to protect your survivors from financial ruin when you're gone. For a good estimate of the amount of insurance you should buy, go to http://www.lifehappens.org/life-insurance/life-calculator.
Even if you don't have heirs, this is a good time to get a will to help ensure that your money goes where you want when you're gone.
December: Make your list and check it twice
You probably remember last Christmas like it just happened a few weeks ago. Excellent. That means your bad gift choices are still fresh in your mind. This year, start thinking in advance about what you want to get each recipient on your list.
Then in early December formalize your choices by writing them down. If you plan ahead, your gifts are more likely to be thoughtful and within your budget.