Five Financial Moves to Make Before 2010

As 2009 winds down, I say act now to improve your financial life rather than resolve to do something about it next year.

Forget the resolutions, it's time to act.

As 2009 winds down, I say act now to improve your financial life. Don't just resolve to do something about it next year.

That's why I'm suggesting five moves you can make before the end of the year to brighten your financial outlook in 2010.

None of these suggestions is particularly unique, but they can be easily accomplished between now and New Year's Eve no matter how tight your finances. These are the can't-miss suggestions I'd give if given just 30 seconds to answer.

Implement just one and you will take a small step toward greater financial security. Implement two or more and you will accomplish more than many Americans do in a year.

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Here are my five suggestions to end 2009 on a strong financial note:

1. Add one percent to 401(k) contribution: Think you can't save more for retirement? Then this is the way to go. Boost your current contribution rate by one percentage point now. Then do it again this time next year, and then again the year after that.

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Within five years, you'll be saving an extra $2,500 a year on a $50,000 salary. That extra $2,500 a year, compounded at 7 percent a year over 30 years, can turn in to an extra $236,000 at retirement.

Maintain the momentum, and someday you may hit the maximum annual contribution. Currently, that contribution limit is $16,500 (plus another $5,500 for those 50 and over). Now that's a resolution to make for the long term.

2. Review life and disability insurance: This move won't lead to a bigger investment portfolio or cut your credit card debt. But it's an essential step for just about everyone.

If you are a parent raising children at home, then life insurance is essential. If you don't have it, then get it. In most cases, term life insurance is cheap relative to the protection it offers. For a 35-year-old man in good health, a $500,000, 15-year term life policy can be found for about $20 a month. (The price goes up for those in less-than-ideal health.)

Even if you have life insurance coverage through a job, you should consider a private life insurance policy. Most group life insurance policies offered by employers do not provide sufficient coverage, often just one or two times your annual salary. Also, you want a private policy in place in case you leave your job, whether by choice or by layoff.

Disability coverage is equally important, but receives much less attention than life insurance. If you're a young worker, there is a higher chance of becoming permanently disabled and unable to work than there is of dying prematurely.

Typical long-term disability policies offered through employers pay up to 60 percent of your pre-disability salary. Social Security provides additional coverage, but that by itself is not enough and the standards for being considered disabled are tougher to meet.

One thing to look for in a disability insurance policy: Will it pay if you are unable to perform your current occupation or any occupation? In most cases, you'll want what's called "own-occupation" coverage that covers your current type of work.

Finally, if you think your job could be at risk, look over your group life and disability policies to see if you can convert these to individual policies that you can take with you after you leave the job.

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