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Financial Planning for the Next Thousand Years

By David Braze (TMF Pixy) and David Wolpe (TMF DBunk)

As we draw down the blinds of this bright millennium, we naturally are inclined to look back at the long shadow of the past thousand years and to reflect on what we've done.

Sure, we may bask in the glory of our victory at the Battle of Hastings in 1066, or rue the fall of Constantinople in 1453, and try to decide whether Michelangelo, Leonardo, or Leroy Neiman was the "Painter of the Millennium." And when we're done thinking about these trivialities, our attention turns, as a sunflower to the great orb itself, in the direction of our personal finances. We wonder if we shouldn't have sold that used Honda for seven grand instead of six and a half. We wonder if clipping coupons is really worth it. And we think of ways to save for the next thousand years.

With that in mind, we offer up these end-of-the-millennium house-cleanings for your financial edification:

1. If your car is three or more years old, increase the deductible on the collision and comprehensive coverage to $500 or $1000 to obtain a lower premium on your car insurance. You might think about dropping that coverage altogether on cars older than five years. Sure, if you're in an accident with the Visigoths on their way to invade Italy in 409, or you're on I-95, you need to be covered. But as a car gets older, it declines in value. Your insurance company will only reimburse you for its fair market price as determined by standard rate books. Thus, the premiums for such coverage may not buy you as much protection as you think.

2. Take a look at your life insurance beneficiary designations on both your work and personal policies to ensure that they are up-to-date. After all, no one in the past thousand years has managed to live forever, and it's a fair bet that you won't either. If that's the case, who's going to get your assets when you pass on? Better your nephew Mort than your Uncle Sam. And by the way, is your coverage sufficient to take care of your family? Now's the time to look at those needs, particularly if you've added a child or two to the family circle since you purchased coverage. If you decide you do need more insurance, then think about a term policy that lasts for up to 20 years. It will provide far more coverage for the same premium dollar than anything else.

3. While you're at it, take a look at your life insurance company. Incredible as it may sound, institutions as well as individuals are mortal. That's a fancy way of saying that insurers fail. You can call up the company and ask for a recent report card, which is usually free. Better yet, call your insurance agent and ask her to provide you with that information. If she balks, threaten to take your business elsewhere. Insist. If she balks again, then at least you advanced the runner from first all the way to third.

4. Change to a higher deductible on your homeowner's or renter's insurance in order to secure a lower premium. The money you pay on those higher premiums is guaranteed to go out the window. (Glass windows were invented in the first century, during the Roman Empire, contrary to what Microsoft may have you believe.) Sure, disaster happens, and having to pay just $250 or $300 to replace all of your cherished Tupperware figurines is better than paying $1,000 before the insurance kicks in. But for that lower deductible, you're going to pay much more in premiums. So just how likely is that disaster to happen? The lower premium cost could pay for itself in five years or so.

5. See if you can get a better phone rate for your long distance calls. Go to http://www.1010phonerates.com and look at all the price comparisons at your fingertips. You can pack a lot of savings into your wallet as you stroll into the mall, just from what you've saved on calling cousin Claude in the Rhone Valley. (Invention of the telephone: 1876, by Alexander Graham Bell.)

6. Review and prune your portfolio. Sell losers to offset capital gains on winners you sold during the year. (Scissors existed in ancient Egypt. Prunes have probably been around since the Pleistocene Era, for all we know.) In any event, don't hang onto your dogs just because they're there. Write down the reasons you bought the stock in the first place. Evaluate them now. If you don't feel that they still hold, and if they haven't been supplanted by something better, sell.

7. If you find yourself on the delicate cusp between a lower tax bracket and a higher one, postpone your bonus/income payments to the next millennium in order to save on your tax bill. Remember: The cusp you save may be your own.

8. Run a preliminary income tax return to see if additional deductions may reduce your tax bill (e.g., increase charitable contributions before 12/31). And think of the Fool Charity, while you're at it. (Invention of charity: followed closely the invention of generosity, which sprang out of the primordial soup.)

10. Get the car tuned and checked for winter. Overheated or frozen engine blocks may cause you to buy a new car earlier than would otherwise be necessary. Our technological achievements have been many, but control of weather is not among them.

11. Clean the gutters and shut off the outside water. Water damage from backed-up runoffs and frozen pipes may be hazardous to your financial health. You don't really need a shower in the bedroom or basement storage area, especially if it spoils all those paper bags full of oatmeal you've stocked in case of a Y2K disaster.

12. Clean out the garage and attic and hold a garage sale. If you haven't used something in the last two years, you don't need it. (This applies to the garage as well as to what's in it, but the former is tougher to unload). You can use the extra storage space, and the sales proceeds will help pay for Christmas gifts for the family so you can fill the space up again. Donate the unsold stuff to charity and gain a tax deduction.

13. Add up your ATM charges to see how much that convenience has cost you over the past year. Then start using your checks more often so you can line your pockets instead of the bank's. If you're discouraged by the fees charged by your local banks, and especially if you find yourself online and able to navigate the Web, consider turning to Internet banking. You can earn interest on your checking account, download transactions into Quicken or Microsoft Money, and save yourself some hassle. ("Hassle" was probably invented in the 1960s, though no one knows for sure.)

14. Take your vacation now, while it's off-season. You'll spend less. So what if you find yourself on the beach with an icicle hanging from your nose? In the summer while everyone else is blistering in ultraviolets that have slipped through holes in the ozone, you can goof off at work.

15. Delay mutual fund purchases until after the dividend is paid. (If you absolutely must buy a mutual fund in the first place, get some Foolish guidance on finding the best one.) In a taxable account, buying at this time of the year means you'll typically pay taxes on dividends paid in the last quarter. When the dividend is paid, the share price drops by that amount. In effect, you end up paying taxes on a phantom gain. Thus, fund purchasers should wait until the dividend is paid, and then buy into the fund.

16. Review your credit card bills to see how you can stop paying that outrageous interest. Make eliminating that debt your first resolution for the new millennium. Pay it down or transfer balances to a card with a lower rate. Raid your piggy bank, cut the kid's allowance, or give up your thrice-daily shots of Starbucks latte if necessary. Just find the money to rid yourself of that debt. Avoiding those interest charges is the same as putting a risk-free, tax-free return in your family coffers. And once that debt is gone, you will have all the more wherewithal to pay for other family goals and needs.

17. Vow to save more money in the coming year. Then do it by taking your next pay raise and putting it into your retirement plan or college fund. The kids may still be in diapers, and retirement may be 35 years away, but time flies and it flies fast. The earlier you start and the more you contribute to these savings goals, the easier it will be to reach them.

See you in a thousand years!

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