Asset allocation for dummies

Use online tools to figure out your personal mix of stocks and bonds.

NEW YORK (Money Magazine)

Generally speaking, stocks provide more long-term growth, but they can be volatile. Bonds, on the other hand, tend to be more stable but offer relatively little growth. As a result, most people should put their money in a mix of both -- but how much of each depends on your age and how soon you plan to retire and begin withdrawing your savings.

Cash or cash equivalents like money-market funds pose very little risk but offer very little return. Beyond a modest supply of emergency funds, you might not need cash in your portfolio at all until you're about to stop working.

In general, the younger you are, and the further you are from retirement, the more your portfolio ought to be weighted toward stocks. The reason has to do with one's ability to withstand and recover from big stock market declines.

Younger folks, with a lot of working years ahead, can generally count on a steady stream of future earnings long into the future. As a result, money they invest in the near term represents a relatively small percentage of their lifetime earnings. And their future income stream -- which some economists actually encourage us to think of as playing a bond-like role in our overall financial portfolio -- will likely dwarf the size of any stock market losses incurred early on.

Calculator: When will you be a millionaire?

This isn't true for everyone, of course -- only those who can reasonably expect to maintain steady income well into the future. Entrepreneurs, by contrast, tend to have highly unpredictable incomes, in which case they ought to tilt their portfolios toward bonds.

The upshot? Until retirement is imminent -- at which point a more customized financial plan is in order -- most people can follow a simple rule of thumb: Subtract your age from 100. The result is the percentage of your savings that should be invested in stocks. The rest should be in bonds. For instance, if you're 40 years old, you should have 60 percent of your funds in stocks and 40 percent in bonds.

Then you can make some adjustments depending on your circumstances and attitudes. For example, increase your stock allocation by one percentage point for every year you expect to work past age 65. Another: If you are fairly comfortable with risk, you might subtract your age from 110 instead of 100.

Once a year, you'll want to repeat the calculation and "rebalance" your portfolio -- especially because market forces might have thrown your stock-bond mix out of whack in the interim. If stocks had a great year and bonds a lousy one, for example, your percentage of stocks will have grown too large.

Related: Want income? Look beyond the old reliable dividend stocks

Those who want to get more sophisticated about dividing their portfolio among types of investment -- not just stocks and bonds, but small and foreign company stocks as well -- should give this three-question asset allocation tool a try. Among other things, it gauges how much risk you can tolerate and your typical response to stock market volatility.

On the other hand, if all this sounds like more than you're likely to tackle on an annual basis, consider placing your money in a target-date fund, which will automatically adjust your stock-bond mix as you get closer to retirement. All you have to do is determine when you plan to retire. Target-date funds tend to be too heavy on stocks for those approaching retirement, however; but that, again, is when you should be developing a more tailored financial plan anyway.

Another solid one-stop option is a low-priced balanced mutual fund. These funds generally mix stocks and bonds in about a 60/40 ratio -- a bit conservative if you're in your 20s or 30s, but in the right ballpark if you're in your 40s or 50s.

First Published: March 3, 2014: 9:25 AM ET

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Stocks hit by Ukraine and Russia fears

Click the chart for more stock market data.

NEW YORK (CNNMoney)

The Dow fell more than 150 points, or nearly 1%. The S&P 500 and Nasdaq were also down almost 1%.

Investors were cautious following news that Russia has moved forward with military intervention in Ukraine. Ukraine's new leaders have accused Russia of declaring war.

Stocks in Russia took the biggest hit. The Micex index tanked almost 11%, while the Market Vectors Russia ETF (RSX) was down 7%. Investors seemed to be very concerned by threats of serious sanctions against Russia from the United States and Europe.

Russia's central bank reacted by hiking interest rates, saying it wanted to maintain financial stability and inflation levels as market volatility increases.

All the major European stock markets fell sharply in afternoon trading, with Germany's Dax dropping more than 3%. France's CAC 40 was off more than 2% and London's FTSE 100 down about 1.5%.

The Ukraine fears hit most Asian stock markets as well. Hong Kong's Hang Seng index closed 1.5% lower and Tokyo's Nikkei dropped 1.3%. Stocks in Shanghai and Shenzhen bucked the trend and moved higher.

Related: 5 reasons Ukraine matters to the world economy

Though global markets were getting knocked down, Nigel Green, founder and CEO of deVere Group, said he doesn't expect the sell-off to last long.

"There has been some volatility in the capital markets as a result of the political and military uncertainty in Ukraine, which have naturally exacerbated concerns about the country's fundamental economic weaknesses," he said. "However, I fully expect this to be a short-term phenomenon. "

Green said that while Ukraine's problems may raise more concerns about emerging markets, he doesn't expect the crisis will trigger another global recession. Rather, Green said the situation will be limited to Russia and Ukraine.

Meanwhile, as investors seek safe-haven assets, gold prices rose by 2% to around $1,350 per ounce.

Investors were buying U.S. Treasuries too, pushing the 10-year yield down to 2.61% from 2.65 late Friday. Bond prices and yields move in opposite directions.

The price of oil is also up, with crude prices rising by 1.5% to nearly $104 per barrel.

"Russia's involvement clearly magnifies the scope for contagion and increases the possibility that global energy prices will be affected both directly and indirectly," wrote Stephanie Flanders, chief European market strategist for JPMorgan asset management in London.

Related: Fear & Greed Index still in Greed despite Ukraine worries

In company news, Men's Wearhouse (MW) said Monday that it has entered into merger talks with its rival retailer Jos. A. Bank (JOSB).

First Published: March 3, 2014: 9:44 AM ET

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Six steps for building a better budget

Just writing down what you make and what you spend can change your financial life for the better.

NEW YORK (Money Magazine)

The mere act of writing down -- on paper, in a spreadsheet, or on a website or app -- how much money you have coming in and how much is going out can make a huge difference when it comes to getting a handle on your finances.

It can help you avoid outright waste on things like late fees and overdraft penalties. It will help you identify where you could save money without painful cuts. And eventually it will enable you to spend less than you bring in so you can save for the future.

The short-term goal should be to reduce your spending to 90% or less of your income.

Here are six steps you need to take:

1. Add up your income. Tally up your family's monthly after-tax income. If what you earn varies depending on how many hours you work, add up your monthly total for a few months so you can calculate an average. But don't include dollars you can't be sure you'll receive, such as year-end bonuses or tax refunds.

2. Track your monthly spending. Make a list of all of your regularly occurring expenses: Mortgage or rent, utilities, insurance, child care, groceries, gas, car payments and access to phone, Internet and TV service are some common ones. Maybe you're also making payments on outstanding credit card debt, a student loan or a home equity loan. Add them all up to make sure the money coming in is more than what's going out each month.

Related: How healthy are your finances?

3. Don't forget the little things. You may still do a sizable amount of spending that's hard to group into large monthly buckets -- money, perhaps, that you withdraw at the ATM and spend on day-to-day needs. Start tracking where that cash is going by keeping a journal of expenses for the next four weeks. You can use those results to extrapolate how much cash you're going through in a typical month.

4. Expect the unexpected. Often, "unexpected" expenses that can derail a budget aren't really so unexpected. Holiday gifts for your kids' teachers? Happens every year. Getting hit up with requests to buy stuff for fundraisers? You know they're coming. Since you can count on a parade of these recurring one-off expenses, project a conservative estimate for the year and include it in your budget.

5. Look for items to cut. If you're spending more than you make, creating a budget can help you find places to cut the fat. Maybe you could cancel a monthly subscription to an expensive gym or some premium cable channels. Wait until things go on sale to buy them, turn your thermostat down in winter and up in summer, and when you pay off your car, don't immediately trade it in for a new one.

6. Get high-tech help. A personal-finance program like Quicken, or website or app like Mint, has built-in tools that can help you create a budget. With many of these services, every time you make a deposit, write a check, pay a credit card bill or dispatch an electronic payment you are asked to assign it to a particular category. And if you bank online, you can download your payments and deposits directly from the bank rather than entering them by hand.

First Published: March 3, 2014: 9:21 AM ET

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Quick guide to how much you'll need to retire

Calculating how much you need for retirement and setting a goal, helps you reach a comfortable retirement.

NEW YORK (Money Magazine)

The answer depends not only on what you hope to do during retirement -- work part time? travel the world? -- but on unpredictable factors that are largely out of your control, like your health and the performance of the stock market.

But don't use that as an excuse not to try. The reason: People who have a retirement savings goal -- even if that goal is a product of back-of-the-envelope calculations -- are vastly more likely to retire comfortably than those without one. So get out your envelope. Here's a quick-and-dirty way to estimate your retirement needs.

Find your multiplier

The most commonly used rule of thumb projects that the average retiree will need to save 11 times (some experts say 12) his or her salary at retirement age in order to be reasonably confident of having enough funds.

Watch: How to save for retirement in 2014

The problem with that ultra-easy method, of course, is that unless you're very close to retiring, you have no idea how much you'll be making when you decide to hang it up. So author Charles Farrell, in his respected book Your Money Ratios, crunched some more numbers and came up with multipliers based on your current age and income. In order to have a good shot at replacing 80% of your pre-retirement earnings, he recommends that you aim to have accumulated:

• 1.4 times your annual income at age 35;
• 3.7 times your annual income at age 45;
• 7.1 times your income at age 55;
• and 12 times your income at age 65.

Don't panic!

If you're already behind by that measure, don't despair. Ratcheting up your savings rate may be enough to make up for lost ground. But even if you can't catch up, the truth is that there isn't a single path to a satisfying retirement. By living on 70% of your salary or working a few more years, you can cut the savings levels you need to reach by 10% to 25%.

And you can probably live on less. Planners typically suggest you aim to replace 70% to 80% of your pre-retirement income, which doesn't amount to a dramatic lifestyle change once you eliminate the money you were saving, Social Security taxes, and commuting costs. But many retirees find they can get by on 50%.

Related: Have enough money for the retirement life you want

We'll offer a more detailed guide to projecting your retirement needs further down the Road to Wealth. But another option is use an online calculator like this one from AARP.

First Published: March 3, 2014: 9:21 AM ET

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Plug the financial leaks, now!

There's no reason to let your money go down the drain.

NEW YORK (Money Magazine)

Unfortunately, many of us are too consumed by day-to-day life to focus on the countless instances of small-scale back-sliding: completely unnecessary waste, extra money we could have if we just reached for it, fees we could avoid if we just made a little effort. The stupid easy stuff, in other words.

What follows is a list of 10 common financial leaks -- by no means an exhaustive list, but a good starting point -- and strategies for plugging them.

1. Your savings barely earns interest. The average money market fund pays next to nothing -- 0.12% as of March 2013 -- yet savers still leave loads of money in them. With a little shopping around, you'll see that many institutions pay close to 1%, which can earn $100 a year on every $10,000 in savings. Search for the best rates here.

2. You don't admit your money mistakes. This one has broad application, but let's focus on a really common one: You haven't been to the gym in months, but you don't cancel your membership because doing so would mean acknowledging that you made a mistake -- and that you won't get back the money you already wasted. Continuing that unused membership can cost $500 to $1,000 a year.

3. You waste your flexible spending dollars. A third of FSA account holders let their hard-earned dollars go unspent each year -- at a cost of $120 a year on average. To use up funds by the Dec. 31 or March 15 deadline (check with your firm), buy a spare pair of glasses or stock up on staples like bandages. You'll need a prescription to get reimbursed for most OTC meds, which your doctor can fax to the pharmacy.

Calculator: Net worth -- How do you stack up?

4. You leave your heat and AC running for no reason. Using a programmable thermostat to adjust your home's temperature -- it can lower the heat at night and when you're at work, for example -- could shave 5% to 15% off your heating and cooling bills. What's more, about half of households with a programmable thermostat fail to use that feature.

5. You pay your bank to hold your money. Americans spend $7 billion on bank fees each year. But many banks will waive their monthly checking account fee if you set up direct deposit from your employer.

6. You pay your fund manager for making too many trades. Mutual funds that replace their holdings the most frequently have only a 31% chance of outperforming the market, says Russel Kinnel, director of mutual fund research at Morningstar: "You're better off steering clear."

Watch: How to save for retirement in 2014

The brokerage and other costs that managers ring up by moving in and out of stocks on a regular basis don't show up in the expense ratio. So check your fund's turnover rate at Morningstar.com or in the prospectus. If the entire fund turns over 1 1/2 times (150%) or more a year, it's too much.

7. You pay your fund company too much for doing almost nothing. Running a passively managed broad index fund requires relatively little human input, so the "expense ratio" you pay on such funds should be tiny. Yet, the difference in cost between the lowest- and highest-priced index funds can be nearly one percentage point -- or close to $1,000 a year for every $100,000 you invest.

8. You spend more on your car than it's worth. Once your car is 10 years old, the cost of repairing it after an accident is very likely more than the car is worth, says Philip Reed of Edmunds.com. Dropping collision coverage for your wheels and covering just injury and property damage could save up to 40%.

9. You pay too much for auto insurance. Drivers who have stayed with the same insurer for more than eight years could save 19% by switching, according to a recent study. Yet, 75% of policyholders automatically renew without getting a new quote.

10. You don't bundle your insurance policies. Insuring your home and auto with a single company can save up to 25% per year, says Alec Gutierrez of Kelly Blue Book. That's $300 a year for a typical home and auto policy.

First Published: March 3, 2014: 9:21 AM ET

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The college savings cheat sheet

Savings for your kid's college education? The simplest choice is an age-based 529 plan.

NEW YORK (Money Magazine)

We're talking about 529 college saving plans, which are named for the IRS tax code that created them. With a 529, you can save for college tax-free, as long as the money is used for higher-education expenses. Despite this huge tax advantage, 529 plans are still overlooked -- only one in four parents saving for college are putting money in a 529, according to a recent survey by lender Sallie Mae.

Why are families missing out on 529s? Well, chalk it up to confusion. Nearly every state has its own plan, and some operate more than one, so shopping around can be daunting. (You can invest in nearly any state's 529, not just your own.) And much like a 401(k), each 529 presents you with a wide array of investment choices to sort through. Still, you can quickly drill down to the right choice for you -- just follow these five steps:

1. Check out your state's tax breaks. First determine what tax benefits your state offers -- most states let you claim a deduction for contributions to a 529. (Go to savingforcollege.com, where you can look up each state's tax breaks and 529 plans.) If you live in a state with no income tax, or one that doesn't offer a tax deduction, you're free to look elsewhere. You can also shop around if you live in one of the six states (including Missouri and Pennsylvania) that allow you to deduct contributions to any state's 529 plan.

2. Assess your state's plans. If your state does give you tax breaks, you're typically better off investing at home, especially if the deductions are generous. But there are exceptions. When the local 529 offers poorly performing funds or charges high costs -- say, more than 0.5% -- you may do better by going elsewhere. (More on costs below.) And for those investing for young kids, you may be able to start out with your in-state plan and later roll over your money to a better plan elsewhere. Some 14 states allow you to move your funds to an out-of-state 529 without penalty as long as you stay invested for a few years.

3. Keep your costs down. For many years 529s levied higher fees than retail brokerages did for comparable offerings, which took a big bite out of returns. But competition is finally pushing down costs.

Calculator: How much will college really cost?

To find a low-cost 529, stick with those that are direct-sold -- meaning you invest directly with the plan -- and avoid plans sold through brokers and advisers, who typically layer on fees. If you sort through the choices, you'll typically find funds charging less than 0.5% -- often index offerings that cost 0.2% or less. (You can find links to the different state plans at collegesavings.org).

4. Opt for an age-based fund. The simplest and best choice for many families is an age-based portfolio, which is similar to a retirement target-date fund: You get instant diversification and the asset mix shifts to become more conservative as your child nears college. (That automatic feature is especially helpful for 529s, since you can generally make only one investment change a year.) But make sure you're comfortable with the asset mix, since some age-based portfolios are more risky than others -- an aggressive fund for a 10-year-old might have 70% in stocks, while a conservative choice might hold less than 30%.

5. Protect your portfolio. When you're one or two years away from paying that first tuition bill, you may want to shift out of the age-based fund to even safer assets. Just make sure they really are safe.

Watch: Is the cost of college crippling?

Many families were hit hard in 2008 by losses in their 529 bond funds, which turned out to hold subprime mortgage securities. Today fixed-income investors face the prospect of rising interest rates, which would push down bond prices. The longer the maturity of the bond funds, the bigger the potential losses.

Still, 529s offer many low-risk options, such as a high-quality short-term bond fund, which is likely to hold up relatively well if rates rise. (You can look up the fund's average maturity and credit quality at Morningstar.com.) Many 529s also offer stable value funds, which are backed by an insurance company and hold a steady net asset value -- they pay a yield equivalent to a short-term bond fund. And some plans, like Ohio's CollegeAdvantage 529, let you invest in bank CDs. You can't get safer than that.

First Published: March 3, 2014: 9:22 AM ET

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Diversify your portfolio in four easy steps

Broad diversification, beyond plain vanilla stocks and bonds, can help you reach higher returns.

NEW YORK (Money Magazine)

Now it's time to really refine your portfolio, both to make sure you are broadly diversified and perhaps to reach for a higher return. Here's how.

1. Go beyond blue chips. Many investors will choose to purchase stocks through a mutual fund that holds mostly large company stocks, or one that tracks an index like the S&P 500, a list of the 500 most valuable public corporations.

That generally makes sense: Such blue chip stocks represent about 75% of the value of the U.S. market. But it leaves out another 25% that you don't want to miss, because in many years shares of small- and mid-size companies outperform the big ones.

The Money 50 list of recommended funds includes the dedicated small- and mid-size picks iShares Core S&P Mid-Cap ETF (IJH) and iShares Core S&P Small Cap ETF (IJR). Or you can simplify your portfolio my choosing a core holding that includes the full spectrum of U.S. stocks, such as a "total stock market" index fund.

2. Consider a tilt. A large body of research has shown that it's very difficult for stock pickers to outperform the market. (In other words, you are usually just better off buying and holding an index fund.) But some of the same researchers have identified a few patterns in historical stock returns that might help you carve out extra gains over the long run. Both small-company and "value" stocks -- that is, those that trade at low prices relative to their earnings or business value -- seem to offer investors an edge.

Small-cap stocks have bested blue chips by an annualized two percentage points since 1927, according to Morningstar data. About the same is true of large-company value shares over pricier large "growth" stocks. The big winners? Stocks that are both small and cheap.

Calculator: Asset allocation -- Fix your mix

It's important to understand that this extra return isn't without a downside: Smaller companies provide a high average return because they are riskier investments. Likewise, value stocks may be priced low because the market sees trouble ahead for the company. And portfolios tilted toward small and value sometimes underperform the market for years -- so this is a strategy that requires patience.

You can tilt your portfolio by beefing up your stake in a small-cap fund or adding a value-focused fund to your core holdings.

3. Don't forget your passport. The U.S. market represents only about a third of the world's equities, by market value. That doesn't mean you should own mostly foreign companies -- the rest of the world's markets include some very risky places to invest -- but many advisers recommend keeping about 30% of your stock portfolio in an international mutual fund or ETF.

One big reason is diversification: Foreign markets don't move in step with U.S. markets. By further spreading out your risks, you may be able to lower your volatility without sacrificing return.

Watch: What to expect in the stock market in 2014

Emerging markets funds, which invest in places like China and Latin America, frequently sport impressively high returns in good years, but often at the cost of extreme volatility. If you want to reach for those extra gains, go with a fund that diversifies broadly across many different emerging markets. Or simply hold a foreign fund that includes emerging markets as a part of its strategy.

4. Diversify your bonds, too. Keep money you expect to be tapping relatively soon in bonds with short maturities, or in a bond fund with a short duration. (Duration is a measure of how a bond will react to a change in interest rates -- roughly, a fund with a duration of two years will lose 2% for each 1% rise in interest rates.)

For longer-term holdings, look for a fund with an intermediate portfolio duration, which will allow you to take advantage of higher yields. You can also spread your bets among different kinds of bond issuers -- many general bond funds hold both corporate bonds and U.S. Treasuries. Foreign bonds offer diversification benefits similar to foreign stocks.

You can also diversify the risk of inflation. A Treasury Inflation Protected Security, or TIPS, bond delivers a lower yield, but one that is guaranteed not to be eroded by inflation. You can buy individual TIPS from Treasurydirect.gov, or hold them through a mutual fund that specializes in inflation-protected bonds.

First Published: March 3, 2014: 9:23 AM ET

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Improve your financial life - automatically

An app like Mint can link your checking account and credit card accounts to track your income and expenses.

NEW YORK (Money Magazine)

Ever been there? There's a way to avoid this problem: Automate at least some of the bill-paying process -- and other pieces of your financial life while you're at it. Banks have been improving their digital offerings and nudging customers toward them because they're cheaper than paper, but there's a benefit for you, too: Once you set up online or mobile banking, paying bills can be fast and almost painless.

Here's your financial automation checklist:

Direct deposit. Start by signing up for direct deposit at work so your paychecks land in your bank account automatically. It makes the money available sooner and saves you all those trips to the ATM. Plus, many financial institutions will waive their monthly checking fees for customers who use direct deposit. (Some banks have minimum thresholds, so check to make sure you qualify.)

Bill payments. This is the next logical step. To set up electronic bill payments via your bank's website, you'll need your account number at each company you want to pay and likely its address too. With bills that fluctuate each month, or if you prefer to initiate each payment yourself, all you'll need to do is go online, enter the amount of the payment, and the rest happens electronically.

Watch: Biggest tax changes you'll see in 2014

With bills that are identical each month, like a mortgage, set up automatic payments. Just be certain that you'll always have enough in your account to cover it. If you're short, the bill may still get paid on time, but you'll be hit with a $30 or $35 overdraft fee. If you tend to live paycheck to paycheck, add email or text alerts if your bank account balance drops below the amount scheduled to be withdrawn.

After the first bill for any new vendor is scheduled to be paid, verify that the transaction went as planned.

Most checking accounts don't charge for online bill-paying; some prepaid debit accounts do. If you don't want to go through your bank, you can go to websites of the vendors you pay every month and set up automatic payments through your credit card. This lets you consolidate numerous monthly bills into a single credit card statement.

Budgeting. If you use budgeting software like Quicken, or a budgeting website or app like Mint, link your checking account and credit card accounts so all your bills and expenses will be categorized and easy to track in one place.

Savings. Most companies that offer a retirement savings program like a 401(k) make it easy to divert a portion of each paycheck into these accounts automatically. (Increasingly, in fact, this is the default option for new employees.)

Calculator: How fast will your savings grow?

Don't pass up this easy and valuable savings tool. If you commit, say, 10% of your pre-tax salary to retirement savings, you won't pay income taxes on it. Your company may match your contributions. And when you don't see the money in your account, you tend not to miss it -- and you'll probably get used to living on less.

Even if you don't work for a company with a 401(k) plan, you can set up automatic transfers from your checking or savings account into a tax-advantaged account like an IRA or Roth IRA, a 529 college savings plan, a brokerage account, a vacation account, house fund or any other savings goal or vehicle you have.

Auto-escalate your savings. Within many company 401(k) programs, you can instruct the plan provider to automatically increase your savings rate by an amount you choose (usually between 1% and 3%) on the same day every year. Gradually increasing the amount you save this way can add substantially to your savings without taking a big hit all at once.

Portfolio rebalancing. Smart asset allocation -- that is, dividing your investment portfolio among different types of assets -- is an important stage on the road to wealth. And once you determine the right mix for you, it's important to maintain those proportions over the long-term, even as market fluctuations throw them out of whack.

Periodically "rebalancing" your portfolio is the answer -- and many investment companies now offer the option of automatic, periodic adjustments back to your desired allocation.

First Published: March 3, 2014: 9:24 AM ET

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10 steps to painless estate planning

If your finances are in order and wishes are simple, you may be able to use an online legal service -- and not a lawyer -- to draft your will.

NEW YORK (Money Magazine)

But the fact is your loved ones will have to address those questions when you're gone. And by executing a will and signing a couple other basic documents you can save them loads of aggravation and unnecessary expense -- and grant them the ability to focus on their loss.

So to make this relatively painless, we'll break it down into ten steps.

1. Understand why you need a will. A will lets you tell the world whom you want to get your assets. Die without one -- which is known as dying "intestate" -- and the state decides who gets what without regard to your wishes or your heirs' needs. The laws about this process vary by state, but if you die and leave a spouse and kids, your assets will generally be split between your surviving mate and children. If you're single with no children, then the state is likely to decide who among your blood relatives will inherit your estate.

Finally, making a will is especially important for people with young children, because wills are the best way to nominate guardianship of minors.

2. Take inventory and pick your team. Start by creating a comprehensive list of your assets, including investments, retirement savings, insurance policies, real estate or business interests, and collectible and sentimental items.

Then spend some time thinking about the following questions:

• Whom do you want to inherit your assets?
• Whom do you want to name as guardians for your children in the event that you and their other parent dies?
• Whom do you want responsible for executing your will?
• Whom do you want handling your financial affairs if you're ever incapacitated?
• Whom do you want making medical decisions for you if you become unable to make them yourself?

3. Draft your will. If your finances and wishes are simple, you may find that you can craft a quick and inexpensive will using a Web-based legal document service such as LegalZoom.com or Nolo.com. Otherwise, you'll want to hire an attorney to draw up a will and other documents for you. The cost of having an attorney draw up a basic estate plan can range from $500 to $2,000, and more if you determine together that you should create a trust. (More on that below.)

4. Name an executor. A will also allows you to name your executor, the person who will be in charge of distributing your property, filing tax returns on behalf of your estate, and processing claims from creditors. Your executor can be a friend or relative, or a professional like an accountant or lawyer, but it should be someone you trust and who is willing and able to take on the responsibility.

Calculator: What's your net worth?

If you name a professional, the executor will be paid from assets in your estate. You should negotiate the amount or rate in advance; compensation can range from hourly fees to a percentage of your assets paid annually.

5. Assign power of attorney. No one is immune from the loss of mental clarity that may come with aging or from a health crisis. Granting someone you trust the power of attorney allows that person -- known as your "agent" or "attorney in fact" -- to pay bills, manage investments, or make key financial decisions if you are unable to do so. Your agent is empowered to sign your name and is obligated to be your fiduciary -- meaning they must act in your best financial interest at all times and in accordance with your wishes.

There are different kinds of powers of attorney. "Durable" power of attorney goes into effect immediately. Instead, most people building an estate plan will want what's often called a "springing" power of attorney, which only goes into effect under circumstances that you specify, the most typical being when you become incapacitated.

6. Create a living will. A living will (also known as an advance medical directive) is a statement of your wishes for the kind of life-sustaining medical intervention you want, or don't want, in the event that you become terminally ill and unable to communicate.

Most states have statutes that define when a living will goes into effect, and that sometimes restrict the medical interventions. Your condition and the terms of your directive also will be subject to interpretation. But a patient's wishes are taken very seriously, so an advance medical directive is one of the best ways to have a say in your medical care when you can't otherwise express yourself.

7. Assign healthcare power of attorney. You increase your chances that your directives will be enforced if you have a trusted health-care agent -- sometimes called a health-care proxy -- advocating on your behalf. You can name such an agent by signing what's known as a durable power of attorney for healthcare. Your health-care agent should be able to do three key things: understand important medical information regarding your treatment, handle the stress of making tough decisions, and keep your best interests and wishes in mind when making those decisions.

Watch: Biggest tax changes you'll see in 2014

8. Update your will. Review your will about once every year. You'll also want to update it after a major life change such a birth, death, or marriage, or if you buy some real estate or receive an inheritance. When you do this, also make sure your beneficiary designations on financial accounts, insurance policies and other assets are up-to-date and coordinated with your will.

9. Communicate with your heirs. Inheritance can be a loaded issue, so be sure to discuss your plans and expectations with your family and friends. The sooner and more distinctly you outline your intentions, the less chance there will be for disagreements when you're gone.

10. Decide if you need a trust. Contrary to popular belief, trusts aren't just for rich people. (Though if you do have significant assets, or young children, you'll definitely want to think seriously about creating one.)

A trust is a legal structure that lets you put conditions on how and when your assets will be distributed upon your death. Placing assets into a trust may allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits. If these benefits sound appealing -- and they should -- you can learn more about trusts on the next stage of the road to wealth.

First Published: March 3, 2014: 9:26 AM ET

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Buffett: I'd love to see minimum wage at $15 an hour

NEW YORK (CNNMoney)

Speaking on CNBC Monday morning, Buffett said a minimum wage hike could hurt jobs.

"If you could have a minimum wage of $15 and it didn't hurt anything else, I would love it," he said. "But clearly that isn't the case."

However, he added, he wouldn't argue with President Obama's proposal for a more modest increase, to $10.10 an hour from $7.25 an hour currently.

Buffett, the second richest man in the United States behind only Bill Gates, suggests a different way to help the working poor.

Related: Surprising minimum wage jobs

He argues for raising the Earned Income Tax Credit, which gives tax money back to those earning below a certain income level.

"I think you can accomplish way more through the earned income tax credit without negative effects," Buffett said.

He also said he doesn't really believe any studies on either side of the debate which try to estimate job losses from employers having to pay a higher minimum.

"It's very hard to quantify those trade offs," he said. "People come out with these exact studies. They don't know. Usually you just get proponents of the two sides pulling out figures that substantiate their positions."

Related: Buffett stays mum on stocks and successor

Buffett is a strong proponent of the government doing more to address income inequality. "That's something a very rich country should address," he said.

He has long proposed a minimum tax for millionaires, as well as higher tax rates for top earners such as himself, a proposal known as the "Buffett rule."

Buffett said he once earned the minimum wage himself back in the 1950's, when it was at 75 cents an hour, while he was working at J.C. Penney (JCP, Fortune 500). He said he doesn't have a figure for how many of the 330,000 employees at Berkshire Hathaway (BRKA, Fortune 500) earn the minimum wage but that it's a very small number.

As for the broader U.S. economic outlook, he does believe that job growth will continue to pick up and says he's not worried about the U.S. falling into a new recession, despite some recent signs of a slowing U.S. economy.

Related: Gap raising its minimum wage

"Exactly what's been going on since the fall of 2009 continues," Buffett said. "We've had this moderate but consistent growth. Every now and then we get excited about it speeding up and every now and then we start to worry about a double dip," Buffett said. "But I would say it's been almost a straight line, not at the kind of slope that people would like, but not flat either."

First Published: March 3, 2014: 10:27 AM ET

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