Lela Davidson
As 2009 winds to a close, time has once again come to make your new year’s resolutions. If personal finance is important to you, you undoubtedly wish to set financial goals for yourself in 2010. Even the most money-conscious among us can certainly improve their finances in a variety of aspects, and with the fresh mindset that the new year brings, there is no better time to begin closely examining this area of your life and resolving to make some changes for the better. Below are ten resolutions to consider as we enter a new year.
Build On The Goals You Met Last Year
A new year is a great opportunity to set new, ambitious financial goals. If you met specific goals in 2009 you should be very proud, but you should not take that as an excuse to slow down or stay at the status quo. Rather, build upon these goals and continue to improve. If you’re saving for a new home by allocating a specific amount of money per month to a down payment, up that amount by 3% or so. If your goal was to cut unnecessary spending and funnel the savings into an investment account, try to expand this policy to other areas of your life.
Beef Up Your Retirement Plan
Saving for your retirement is one of those financial goals people tend to put off, figuring that they have plenty of time to consider it later in life. Often, this mindset can be dangerous, as retirement time comes quicker than most people anticipate, and by that time it’s too late to begin saving. Safeguard against this danger by increasing your retirement savings significantly this year. This need not be an arduous or complex task. One proven way of beefing up your retirement account is to increase your 401k contributions by 2-3%. This might not seem like a whole lot, but over time those extra contributions add up to a lot, and you will probably not miss such a small amount of money if you make the appropriate allocations. If you’re lucky enough to work for a company who matches your contributions, that 2-3% becomes a growth of 4-6%. Such discipline can truly set you up for a better future down the road.
Create an Emergency Savings Account
You don’t need an article to tell you that financial crises strike at unexpected moments. Unfortunately, most people don’t plan for such emergencies, and are thus caught with their pants down when disaster hits. Often, the money needed to cover these situations comes out of other financial accounts, such as savings or investments, which ends up setting you back significantly in your financial goals. This year, pledge to be prepared. Create a separate account dedicated to surprise expenses (such as a huge car repair or a busted water heater) and begin squirreling away money into it. Resolve not to touch this money unless it is absolutely needed. The next time your washer or stove breaks, you’ll be proud that you don’t have to dip into the “new car” account to pay for it.
Cut Down Your Debt
Getting out from under debt is one of those very unsexy things in life that never seems very rewarding in practice. No one wants to send hundreds of dollars a month to a credit company in exchange for a number on a piece of paper getting smaller. When deciding to make significantly more than a minimum payment, almost any other fun purchase looks more rewarding in the moment. However, eliminating your debt will open many future doors for you financially. Without that pesky credit card bill due each month, you can use that money for things you really want, such as retirement savings or home improvements. This year, make a resolution to pay two or three times the minimum monthly payment on all your debt. This will enable you to eliminate whatever debt you have twice or three times as fast. When you no longer see bills coming to the house, you’ll be glad you had the discipline to pay it all off.
Look For Used Products When Purchasing Expensive Items
With so many options to buy quality used electronics these days, it only makes financial sense to explore these options when buying big ticket items. If saving money is important to you in the new year, check out websites like CraigsList and Ebay before dropping thousands of dollars on a brand new flat screen or surround sound system for the house. Often, you’ll find the same products you were going to buy new for huge discounts, only because they have been used a few times by their current owners. Many times these items are indistinguishable from new ones, and the money you save will go to much better use.
Stay On Top of Your Credit Score
Your credit score is an important thing for you to know. Having good or bad credit can greatly influence the financial decisions you ought to make. For example, if you have any negatives on your credit report, you should work to clear those up, either by quickly paying off old debts or contacting the company to work out some kind of payment plan. Raising your credit score will help you to get significantly better rates on any future loans. No longer will you have to consider going hat in hand to a place that promises “Bad credit, no credit, no problem!” Conversely, if you have excellent credit, you can begin thinking about the feasibility of a new loan for home improvement, or perhaps financing a new car. In either case, staying on top of your credit score is important for intelligent planning and spending this year.
Assess Your Finances More Closely
Most people stay on top of the big financial burdens and responsibilities they have. It isn’t very common to totally space out on your mortgage payment or electricity bill, and if you do you most likely need to get your income under control. The problem is, many people stop tracking their finances beyond these big recurring bills. It is comforting to think that the money you spend on fast food, electronics and clothing doesn’t really warrant tracking, since you can still pay all of your bills on time. Quite the opposite, staying on top of your daily spending can do wonders for your financial life. If you make a conscious effort to record where all of your money goes, you will likely be surprised at how much of it is wasted and could instead be saved. This year, try to assess your finances closely and use your findings to eliminate needless spending. The savings you accumulate from this practice can no doubt be put to better use.
Begin a Sensible Investment Portfolio (Or Expand Your Existing One)
After the recent market crash, there have emerged two kinds of people. The first type became very frightened of the market in general after what happened. These people refuse to invest, nervous that they “might loose it all because its just too risky.” The second kind of people are the savvy investors who looked at the down market and saw opportunity. These people went right ahead investing intelligently, understanding that the market always corrects itself, and when it does they will rise with it. In 2010, try to be the second kind of person, the one who intelligently invests regardless of the recent crash. This not to say that you should carelessly throw all of your savings into a couple of choice stocks. Rather, dedicate a reasonable portion of your income into a broad portfolio of stocks and index funds. This advice especially applies to the under 40 audience. Wise investors recommend that this is the time in life where it pays to invest aggressively, because you stand to gain the most and lose the least. Saving money in a bank account and accruing interest is better than nothing, but don’t be afraid of the market, for it can earn you far more per dollar than almost any other standard savings available.
Set Long Range Goals
It’s all well and good to set short term financial goals such as “I want my savings to grow 10% this year.” Often however, this isn’t enough. Long range goals are just as important as short term ones. Long range goals are less specific than short range ones, as the scope of your finances cannot be precisely predicted ten years from now. Thus, long range goals are things like, “I want to make sure I have $500,000 saved for retirement by age 50.” You should have an idea as to how you can make this happen, but the specifics of the plan will inevitably change with the ebb and flow of your income. Having long range financial goals helps put your entire financial future into a broader context, and can facilitate more prudent decisions regarding spending and saving over the length of the plan. This year, ask yourself where you want to be financially five, ten and twenty years down the line. Use these ambitions to formulate your personal long range goals.
Set Specific Targets For Your Savings
One of the biggest deterrents to building a robust savings account is the lack of any specific targets that you are saving for. It can be hard to psychologically motivate yourself to pour money into a savings account simply for the sake of having a lot of savings. Combat this demotivating pit-fall by dividing your savings account up on paper into specific targets for the money. For example, if you would one day like to own a boat, get a new condo, and finance a new car, you might rank these targets in order of importance and dedicate percentages of your savings to them. The new boat may occupy 25% of your savings, and as you add money to the account you will begin to see your dreams come closer and closer to fruition. Keep track of how far away you are from purchasing your targets on paper. This will be very motivating to you, and you will begin to see the money you don’t put into savings as money that could have gone to that new condo or car, rather than some nebulous label such as “savings.”
