Another new year is here, and many of us have done the usual: stepped on the scale and resolved to lose weight.
This year, Consumer Reports Money Adviser suggests assessing your fiscal fitness as well. The key is to take a systematic approach.
Figure out if your savings, investments and debts are in sync with your financial goals. If you don't have clear goals, set some.
Here's how to assess and improve your success as a saver, investor and borrower.
Your investments: When it comes to investing, you need a plan.
To develop one, assess your tolerance for risk, taking into account your time horizon, and select an asset allocation that fits your needs.
You can hire a financial planner to help or you can do it yourself by completing an online questionnaire developed by a financial firm like Schwab or Vanguard.
•Rebalance if necessary: Let's say you're comfortable with investments split equally between stocks and bonds.
The average annual return for such a portfolio from 1926 to 2009 was 8.2 percent, but you won't earn that much every year. Don't ditch your strategy after a down year. Instead, make whatever changes are necessary to keep your asset allocation intact.
•Dump your dogs: Compare the performance of your individual investments with appropriate benchmark indexes.
If you own a mutual fund that invests in large-cap U.S. growth stocks, for example, see how its performance compared with the Russell 1000 Growth Index.
If an equity fund you own underperformed its benchmark index by more than 3 to 5 percentage points last year, try to find out why.
•Consolidate: Consumer Reports Money Adviser points out that your fiscal fitness will be easier to evaluate if you keep your brokerage account and mutual-fund portfolio at one custodian.
And you'll save money because customers with bigger accounts get breaks on custodial fees, trading costs, sales commissions and management fees.
Your mortgage: Lenders historically limited mortgage payments to 28 percent of pretax income, although they let that rule slide during the real-estate bubble.
Still, it's a good guide to follow to keep your housing costs in line.
•Consider refinancing: Consumer Reports Money Adviser recommends taking advantage of record-low interest rates to trim your monthly payment and overall loan cost.
You might also reduce the length of your loan, which can save you thousands of dollars in interest expenses.
•Make extra payments: You don't need to refinance to reduce the cost of your mortgage. You can make extra payments toward your loan principal.
By doing so, you'll earn a guaranteed return on your investment equal to your mortgage interest rate.
Your other debts: Aim to limit your other debt, such as car and college loans and credit-card payments, to no more than 10 percent of your take-home earnings.
•Pay off credit cards: Start with the card with the highest interest rate.
Pay as much as you can, and send the minimum payments due on your other cards.
When you've paid off the first card, concentrate on the card with the next-highest interest rate.
•Consolidate credit-card accounts: One or two major credit cards is enough.
If you pay your balance in full every month, consider using a rewards card.
Consumers Union Inc.
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