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January 20, 2013

Plan for financial success in 2013

(Continued)

Knowing what you want to accomplish, where you stand financially and the location of important documents will save you time, giving you a sense of control and peace of mind.

Save aggressively and intelligently. Spending less than you earn and saving and investing the rest is the most powerful wealth building tool we have under our control. We can’t predict investment returns or inflation, but we can control our spending.

Establish a priority for how to direct your savings. If you have an employer retirement plan offering matching contributions, take advantage of it. This is “free” money and it grows tax-deferred. You won’t get a better deal anywhere else. If you still have additional savings, pay down any high interest debt. Eliminating snowballing interest and finance charges will likely yield a better return on your money than any investment. Once you get a handle on your debt, start directing some of your savings into an emergency fund so you are prepared for unexpected expenses or a job loss.

Invest sensibly. Use your savings to build a low-cost, broadly-diversified, tax-efficient portfolio that is consistent with your goals and investment temperament. You’ll get to keep more of your investment returns rather than wasting them on unnecessary commissions, fees and taxes. You’ll also be more likely to stick with your investment plan through good times and bad.

Protect yourself. Even the most substantial and well designed investment plan provides little protection if inadequate insurance fails to cover you, your family and your assets from a large financial liability. Review your insurance coverage to see whether it makes sense for your situation. Make sure you are not paying for the wrong kind of coverage, but most importantly make certain you have sufficient protection. Insurance is your first line of defense against catastrophic financial loss to your income and assets.

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