It’s that time of year when we all think about a new start for the New Year. Often our thoughts turn to getting back into shape and losing weight. This year, why not consider getting your financial house in order? An annual review of your finances can have a huge impact on your financial future. All too often, as the New Year rolls around, we just continue doing the same old things we’ve done in the past. We spend all our time working and little time managing our hard-earned money. A financial check-up may likely indicate the need for a “financial diet”.

What do we mean by a “financial diet”? In the same way losing weight and getting into shape can improve your health and increase your life expectancy, reducing investment fees and lowering taxes can improve your overall financial well being and the “longevity of your portfolio” (i.e. How long your money will last in retirement).

With mutual fund fees often greater than 1% annually, and sometimes even greater, it makes sense to examine your portfolio to see what your funds are charging. It’s easy to check a funds expense ratio on the Morningstar® website. Even a small reduction can have a huge impact on the future value of your portfolio. For example, in about 30 years, a 0.25% reduction in fund expenses for a $200,000 portfolio can increase the portfolio’s value by over $15,500!

With many index funds charging less than a quarter of a percent, it is relatively easy to reduce some fund expenses by as much as a half percent or more than what one of your current funds is charging. For example, the Fidelity Large Cap Stock fund (Symbol: FLCSX), a large cap blend, three-star-rated stock fund, has an expense ratio of 0.83% annually. In contrast, the Fidelity Spartan 500 Index fund (Symbol: FSMKX), also a large stock fund and also three-star-rated by Morningstar® has an expense ratio of just 0.10%, annually, or 0.73% less. What’s more, the ten-year-return of the Fidelity Spartan 500 Index fund exceeds the long-term return of the Fidelity Large Cap Stock Fund by 1.38%.

In general, funds with lower expense ratios outperform funds with higher expense ratios. Keep in mind, however that there are many other factors to consider when picking a mutual fund.

Just as reducing fund expenses can increase your net worth, reducing taxes can also play an important role. Morningstar® tracks fund tax efficiency via the tax-cost ratio. The tax-cost ratio measures how much of a fund’s pre-tax return is reduced due to taxes. A fund with a three-year annual pre-tax return of 10% and a tax-cost ratio of 2% would have returned 8% after-tax, annually. You also need to pay attention to the fund turnover ratio. This calculation indicates the percentage of the portfolio typically bought and sold on an annual basis. Higher turnover can lead to higher taxes and higher fund expenses.

Your 2010 “financial diet” could also focus on reducing your budget and increasing savings. Some financial advisors provide relatively low-cost “financial physicals” as a service. However you do it, putting yourself on a “financial diet” for 2010 could well improve your financial fitness and help improve your long-term financial wellbeing.