Costco Connection - January 2008

FINANCIALconnection

Ten New Year’s

resolutions for

your pocketbook

ONE OF THE surest ways to help make sure that your new year is indeed happy is to get a grip on your finances. That’s not nearly as hard as you might think. My 10 steps to a financially fit 2008 aren’t major time or money drains: A little goes a long way. Here’s the list.

KEI TH LATHROP

1. Do the minimum. Ideally, pay off all your credit-card bills in full each month. If that’s not possible, always pay the minimum due on every card. And pay on time. Fail to follow through and your credit score will get hammered—to say nothing of the $39 or so you can be hit with for each late payment.

2. Automate. Use your bank’s online bill-payment service. Don’t worry: It’s safer than sending payments through the mail. Once you have it set up (it’s super easy) you can pay bills in a snap and even schedule automated payments to avoid late fees. Online checking can also be a terrific budgeting assistant. It’s easy to keep track of income/outgo and see where you might be able to make some money-saving moves.

3. Check your credit reports.

Everyone has a personal file at each of the three credit bureaus—Equifax, Experian and TransUnion. What’s in your files determines your credit score, and that in turn determines the interest rate you will be offered on credit cards, a mortgage, car loans, etc. Get an annual free report from each bureau at AnnualCreditReport.com ( www.annualcreditreport. com) and check for mistakes or any suspicious accounts that could be the sign of identity theft.

4. Save up. A checking account is not the right place for your emergency cash savings. Checking accounts typically pay less than 1 percent in interest. Many saving accounts currently pay 4. 5 percent or more. That’s a big difference.

5. Boost your deductibles. This may sound a bit counterintuitive, but a higher deductible on your car and home insurance can be doubly smart. First, a higher deductible can lower your annual premium by 20 percent or more. And the reality is that a higher deductible means you won’t make the kinds of small claims that tend to annoy an insurance company. That makes it more likely that your insurer will offer you a renewal policy when the time comes, and will help prevent steep premium hikes.

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Suze Orman’s latest book is Women & Money: Owning the Power to Control Your Destiny. Suze’s TV show airs Saturday nights on CNBC. She can be contacted at www.suzeorman.com.

6. Come to terms. If anyone is dependent on your income, be it a child or an elderly parent, you need life insurance. For the vast majority of cases, term insurance is all you need (a special-needs dependent or a family business are two exceptions), and it is ridiculously affordable. You can shop online at AccuQuote.com ( www.accuquote.com) and Select Quote.com ( wwwselectquote.com).

7. Home in on extended replacement coverage. Make sure your home insurance policy states that your dwelling limit coverage is “extended” replacement coverage. This ensures a higher payment for a covered loss than “standard” replacement coverage.

8. Take a tax break (part 1). If “your employer offers a 401(k) or If you qualify 403(b) retirement savings plan that _for _a _Roth _IRA,includes a matching employer contribution, you must—and I mean _make _it _amust—contribute enough to qual- _{ify for the maximum employer}_priority _tocontribution. Passing it up is akin _to _passing _up _a _bonus.^take ^advantage⁹^. ^Take ^a ^tax ^break ^(part ²^). ^Ifyou qualify for a Roth IRA, make it ^of ^it!” ^a ^priority ^to ^take ^advantage ^of ^it!Follow a few simple rules and all of _your _{withdrawals—both} _contribu-

tions and earnings—will be tax free when you retire. (Your 401(k) withdrawals will be taxed at your ordinary income-tax rate.) Individuals with adjusted gross income below $114,000 and married couples who file a joint tax return below $166,000 can contribute. The maximum annual contribution is $4,000 if you are less than 50 years old or $5,000 if you are older than 50.

10. Educate yourself on 529s. If you intend to help pay for a child’s college education, a 529 college savings plan is a great way to stash away money. There is no income limit on who can contribute, and any withdrawals used for college costs will not be taxed by Uncle Sam. Learn more at www.saving forcollege.com. C

The Costco Connection Costco offers special values on a variety of business and personal financial services from leading providers that can help you meet Suze Orman’s 10 New Year’s resolutions. For complete details, go to costco.com and click on “Services.”