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MONTHLY MONEY SENSE

Avoiding financial disasters

Tips on protecting your identity, credit, future and family.

    By Gerri Willis, CNN/Money contributing columnist

January 5, 2006: 10:24 AM EST

NEW YORK (CNN/Money) - As we face a new year, it's a great time to take steps to protecting ourselves and our families from some of the disasters we saw last year. In today's 5 Tips we're going to tell you what you can do right now to avoid those pitfalls.

          1) Keep your identity

Last year may have been the worst year ever for security breaches according to some reports.

And there has been an increase in the sophistication of identity thieves, according to Scott Parsons of the Treasury Department.

If you do any online banking or keep financial spreadsheets and passwords on your computer, you'll want to make sure all your personal data is erased from the hard drive before you throw your old computer away. And that means more than hitting the delete button.

The best thing to do this is to overwrite your hard drive, says Denny Arar of PC World. There are software programs that will do just that.

PC world recommends Access Data's $40 WipeDrive that creates a floppy boot disk that you use to overwrite your hard drive --operating system included. Go to www.accessdata.com.

There can also download data erasers for free from PC world's Web site. Search for Sure Delete at www.pcworld.com. You can also download East-Tec Eraser at www.east-tec.com/eraser/download.htm.

           2) Protect your credit rating

Did you know that if you haven't returned an overdue library book your credit rating could drop by 100 points?

In the midst of rising budget cuts, more and more public libraries are turning to collection agencies to make sure you pay up.

Unique Management Services is an example of a recovery service that will report your overdue fines to your credit agency if you don't pay up after 120 days.

Right now the company has about 750 libraries that use its service. And that number is growing at a clip of 60 clients per year, according to Chief Operating Officer Nicole Atkins.

If you have book or library video that's 60 days overdue, your name, number, address and social security number may be given to these collections agencies.

And a library fine reported to a credit bureau can knock as much as 100 points off a credit score according to Craig Watts of Fair Issac, the leading provider of credit scores.

There's no easy way to tell if your bad library habits have impacted your credit score, since library fines and overdue medical bills are labeled as simply collection accounts.

But you will want to review your credit report and report any discrepancies. Go to www.annualcreditreport.com. And return that book!

          3) Build a comfort zone

There's no time like now to sock away some moolah for an emergency fund.

Since the year ahead may prove to be a bit bumpy -- especially with higher interest rates and rising heating costs, it can only be advantageous to have a financial cushion.

Set your sites on saving between three and six months worth of living expenses – this includes rent or mortgage, food, utilities, debt payments and other regular expenses you can't put off even in an emergency.

Remember, emergency-fund money has to be safe and accessible, so steer clear of CDs. You'll want to investigate money market accounts or traditional savings accounts.

You can check the rates at www.bankrate.com.

And of course, you'll also want to keep your documents safe. Take steps now to secure important documents like birth certificates, deeds, insurance papers and passports.

Companies like Sentry and Sisco are selling fireproof and water proof security chests for $30 to $100. You can get these safes online or go to retailers like Target and Office Depot.

And don't forget to throw in copies of your favorite family photos, too. These items are irreplaceable. And if disaster strikes, it's these things that matter the most.

          4) Insure the future

Have rising gas prices made car pooling more appealing?

If you frequently carpool to a job, or to children's activities, you'll want to change your liability insurance coverage to reflect the additional passengers in your car.

85 percent of people who carpool overlook this according to a recent study by the Independent Insurance Agents and Brokers Association of America.

And if you have a new baby in the household, you should also update your life insurance protection.

          5) Protect your family time

Spending more time with your family is always at the top of everyone's new year's resolutions list.

It's no secret that your insane work schedule is taking too much time away from loved ones.

If that's the case, you may want to consider proposing a more flexible work schedule with your supervisor.

For tips on how to propose and execute that idea, check outwww.whenworkworks.org.

And don't worry, you're not alone. This year 82.5 million workers world-wide have done their jobs at home one day a month, more than double the figure from 2000, according to Gartner Inc., a technology research firm.

Gartner predicts the figure will grow to more than 100 million workers by 2008.

If you find that your home PC is taking up a lot of unnecessary time, sharpen your web search and get shortcuts at http://www.google.com/features.html.

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Gerri Willis is a personal finance editor for CNN Business News and the host for Open House. E-mail comments to 5tips@cnn.com.