Getting your personal finances in order sounds like a task best left to the closet organizers. But there are many ways you can improve your financial security without exerting much effort, or even spending much money.
Here are some no-sweat resolutions for 2007:
Order your free credit reports
Checking your credit reports periodically is a good way to protect yourself against identity theft. It will also alert you to errors that could hurt your credit score.
You’re entitled to one free credit report every 12 months from the three main credit-reporting agencies, Experian, Equifax and Trans Union. To request your free credit reports, go to www.annualcreditreport.com.
Don’t be misled by similar-sounding websites that claim to offer “free” credit reports. They’re usually a backdoor effort to sell you a credit-monitoring service or other product.
You can order all three credit reports at the same time or order a different one every four months. The advantage to the latter strategy is that you can track changes in your credit report over the year, creating your own credit-monitoring service.
This strategy only works, however, if you remember to order a report every four months, says Bridget Smith of LendingTree, an online company that helps consumers shop for loans. If you’re not very organized, you’re better off ordering all your reports at the same time, she says.
You can order your credit reports online or through the mail. To have them mailed to you, call 877-322-8228. You’ll need to answer some questions to verify your identity.
You’ll have to pay an extra fee – usually about $8 – to get your credit score, but it’s worth the cost, Smith says. Lenders use your credit score to determine the likelihood you’ll repay your loans. If you have a low credit score, you may be turned down for a car loan or a mortgage, or charged a higher interest rate. Once you know your score, you can start taking steps to improve it.
Invest your tax refund in an IRA.
Last year, the average refund was nearly $2,500. Many Americans treat their refund like “found money” and spend it. But you can resist temptation by arranging to have your refund deposited directly into an individual retirement account.
This year, for the first time, taxpayers will be allowed to deposit their refund in up to three accounts – a checking account, savings account and a retirement savings plan, such as a regular or Roth IRA.
Just make sure you don’t exceed the annual contribution limits for IRAs, says James Cornell, senior vice president at Fidelity Institutional Retirement Services.
You can get more information about direct deposit from IRS Form 8888, available at www.irs.gov.
Don’t leave money on the table.
The IRS has more than $92 million in unclaimed refund checks that were returned because the taxpayer moved without notifying the government. Nearly 96,000 taxpayers have unclaimed refunds, and the average amount is $963, the IRS says.
If you think one of those checks belongs to you, go to www.irs.gov and click on the “Where’s My Refund?” link. You’ll need your Social Security number, filing status and refund amount (if you had one) on your 2005 tax return. Taxpayers without Internet access can track lost refunds by calling 800-829-1954.
The National Taxpayers Union also provides an online database for taxpayers who may have lost their refunds. You can find the NTU’s Online Tax Refund Finder at www.ntu.org.
Diversify your 401(k)
Most planners recommend investing no more than 10 percent of your 401(k) in company stock. Yet, many workers still have a big slice of their 401(k) savings in company stock.
Investing a large amount of your savings in company stock is dangerous. If your company goes out of business, you’ll be out of a job, and your retirement savings will disappear, too. Think your company is rock solid? A lot of former Enron employees felt the same way.
In the past, some companies have placed restrictions on sales of company stock in 401(k) plans, but that’s changing.
The Pension Protection Act signed into law last year requires companies to lift those restrictions. The law gives companies three years to phase them out, but Cornell predicts that many companies will scrap the limits all at once.
If diversifying your portfolio is simply too taxing, consider investing your 401(k) savings in a target retirement fund. These funds allocate your investments based on when you plan to retire, becoming gradually more conservative as you approach retirement.
