Seven Financial Resolutions for 2010

• barrieabalard
• December 31st, 2009

Whee, it’s almost 2010! Have you thought about ways to improve your financial health in the new year? Here are some ideas to get you started.

1. I will read my bank and brokerage account statements and develop and execute a plan, if one is needed.

When things go south, a lot of people like to behave like an ostrich when it comes to their money. Doing so only compounds the problem. If you’ve got a stock or mutual fund that should be sold, or an overdue bill you’re ignoring, do something about the issue before the problem grows even bigger.

And pay attention to your bank statements! You often have a limited time in which to catch errors, and they do happen—I’ve caught two. Finally, if your bank is nickel-and-diming you with fees, find another bank. Credit unions and small banks often have the best and cheapest/free checking accounts for individuals of average net worth.

2. I will start, or add to, my emergency fund.

If you don’t have an emergency fund, now is the time to start one. Conventional wisdom holds that you need three to six months of expenses in a liquid account. You won’t make hardly any interest on the money, but remember, it’s for emergencies and should be accessible without penalty.

If you already have three to six months of expenses covered, consider adding to the fund (assuming you are free of debt). I can tell you that, in extraordinary times, you might need more like twelve months of expenses to make it through without panicking. I speak from experience.

3. I will pay off my credit card debt.

If this is not an issue for you, feel free to skip to #4.

If it is an issue for you, and you have more than one card, pay them off one at a time, and start with the one with the highest interest rate. You will lose less money down the rathole of credit card interest that way. And, for heaven’s sakes, do something to make the card(s) inaccessible except under dire circumstances to keep from racking up more debt. I personally like filling a Zip-loc™ type of bag with water, dropping the card inside, and putting it in your freezer. Yes, you can still see the numbers if you want to order online, but holding that cold bag in your hand might cool off your urge to splurge. Sometimes all you need is time to think twice about an impending purchase.

4. I will contribute to my 401K or similar plan at work, or I will contribute more, at least up to any amount that is matched by my employer.

If you’re not contributing to your retirement plan at work, I don’t care what your excuse is—start, even if it’s small. Then, when you receive a raise, increase the amount you put in the retirement account. You will not miss the money. Honest. And if a certain percentage of the money will be matched by your employer, you are turning down free money for your retirement. There are few free lunches in life, but this is one of them. If you're lucky enough to work for someone who still matches contributions, you're crazy not to take advantage of it.

You are going to need a lot of money to retire—probably much more than you now think you do. If you get some bad breaks and lose your job after the age of 55, and you don’t have enough, take it from me—you are going to be sorry you didn’t save more.

And—don’t forget to contribute the maximum to your IRA!

5. I will track my spending for at least two weeks, preferably for a month.

Yes, this will be a real pain to put up with, carrying around a small notepad and pen to enter each purchase into it, no matter how small. But it will make you think twice about spending on non-essentials. If you are like most people, you will be surprised at the money slipping through your fingers. I kept track for almost three weeks once, and it really opened my eyes.

6. I will create a will, health care proxy, living will (if applicable), and organ donation wishes (if applicable). I will also initiate sufficient term life insurance (for those with small children or other dependents).

If you have a spouse and/or children, you must have these items filled out and ready to go. You never know—you could have a bad accident on your way to work. Stuff happens, so protect your family and your finances. And, if you would, please consider organ donation, and make sure there’s a written record of your wishes (in New Jersey, you can indicate it on your license, and my immediate family knows of my wishes). It’s truly a gift of life for someone who needs a heart, a liver, a lung, a kidney, and so on. Again, I speak from experience.

Make sure you have also designated someone to care for your children permanently, if who cares for them after your death is an issue for you. You might not want your batty-as-a-bedbug Aunt Edna or your shiftless brother responsible (or not) for them.

As for term life insurance, the cost is truly low when you are in your family-raising years. It’s absolutely essential if you think your spouse would have any problems supporting your children if you died. Think also about future costs to educate the kids and so on. Half a million to a million is not a lot of life insurance these days. Make sure both spouses have some, if both bring money into the household.

7. I will eat healthier and exercise more in the new year. If overweight, I will lose weight.

What’s this have to do with financial health? Plenty. Healthy people who exercise and weigh an amount considered not too thin or not too fat usually have lower health care bills. Plus, it’s easier to find flattering clothing, often for less money, when you take a smaller size. For example, ladies, you’ll find a lot more business clothing in a high-end consignment shop available in a size ten than a size twenty.

Plus, you might spend less at the grocery store if you currently spend a lot on what’s commonly called junk food. I’m not saying you have to eat alfalfa sprouts and wear a hair shirt—just try for some improvement. After all, you do want to live long enough to spend all that money you’re putting in your retirement accounts, don’t you?

Happy New Year! May it be happy, healthy, and prosperous for you and yours.

--Barrie

Tickers: bank statements, brokerage statements, contribute to 401K and IRA, credit card debt, emergency fund, financial health, health care proxy, living will, matching contributions for 401Ks, personal finance, term life insurance, track spending, wills

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