9 New Year's Resolutions

**sunshine** · 01-03-2005, 08:23 PM

From the Dollar Stretcher newsletter:

9 New Year's Resolutions
by Steven B. Smith
Take the first step down the path to financial fitness

Have your personal finances been a bit of a challenge this
past year? Here are 9 suggestions that you may want to
consider for this next year. Now is the time to get control
of your finances, and take that first step down the path to
financial fitness. Why not start this next year off on the
right financial foot?

1. Spend less than you make.

Just like you can't lose weight if take in more calories than
you burn, you can't save money if you spend more than you
bring in. Spending less than you make on a consistent basis is
the key to reaching financial fitness and financial stability.
You can't increase your savings, make investments, reduce debt
or even make wise spending decisions if you're consistently
overspending your income each month. Put together a spending
plan and make it one that works for you and your family.

2. Save at least 10% of your income.

Ever hear of the theory of paying yourself first? That's
basically what this is. If you make it a habit to pull out 10%
for savings and investments for retirement, before you pay any
other bills, you are actively working towards a better
financial future for yourself. This 10% can include your 401k
account if you have one, but be sure you are maximizing that
option! It's also wise to put an additional amount into
savings after your 401k investment is made. Put this money
into a money market account, money market fund or CD if
possible, so that you get a higher interest rate.

3. Calculate your net worth.

Do a reality check to ensure you are on the right track. Your
net worth should be increasing each year, even if it is just
by a small amount. The exercise of calculating your net worth
can be very valuable as well. People often discover accounts,
investments, etc. that they have forgotten about, or need to
update.

If your net worth has decreased from the year before, take an
honest candid look at where you can make adjustments to
improve these numbers. Consider accelerated debt reduction.
Consider increased savings. Even consider canceling every
credit card you have if it means that you stop overspending
and start saving. Be proactive in your efforts to get
financially fit!

4. Start an emergency fund.

If you don't already have an emergency fund, start one today!
Your emergency fund should have a minimum of three month's
worth of expenses in it. This is your emergency money for a
job loss, emergency repair, medical expense, etc. Keep these
funds in a money market account or other high interest, easily
accessible account. If ever you have the misfortune of an
unexpected job loss, unexpected car repair, or unexpected
appliance problem, you will be far more prepared to weather
the storm if you know you have a little breathing room on your
finances, thanks to your emergency fund! That peace of mind
makes all the difference.

5. Reduce your debt.

Use the debt roll down principle to quickly reduce your debt.
Make a list of all your debts and prioritize them in order of
interest (highest to lowest) or in order of the number of
payments until payoff (fewest payments at the top). Once your
first debt is paid off, roll that payment amount into the next
debt on your list. Follow the same procedure when the second
debt is paid off. You will not only reduce the number of years
you will have payments, but you will also save thousands in
interest if you follow this principle until you are completely
debt free.

6. Use credit cards for the benefits, not the penalties.

If you use a credit card, only do so when you know that you
already have the funds set aside to pay the balance completely
when the bill arrives. Do not carry a balance on your card! It
wastes money and ends up costing you a fortune in interest and
finance charges. Are those airline miles really worth it? Only
if you pay it off every month!

7. Make sure you have adequate insurance.

We're talking home, life, disability, health, property and
even auto. Not too many other things will matter if you have
no fire insurance and your house burns down. Make sure that
you, and your family, are covered adequately!

8. Create or update your estate plan and/or your will.

Whether you are single, married, or divorced, you need to have
the proper documents to make your wishes known.

- Update your beneficiary information on your retirement
accounts, insurance, etc.

- Specify money that you want to give to charity through a
trust or gift exclusion.

- When preparing a will, reference an addendum in the will
where you list who will get your various assets and personal
property.

- Make sure all language is clear and as specific as possible
so that your wishes can be carried out.

9. Manage your portfolio.

If you have any 401k accounts from former employers, be sure
you roll them over into an account that you control.
Consolidation can also make your retirement accounts easier to
manage. However, in doing so, make sure you don't jeopardize
the diversification. Tools like Mportfolio, from the makers of
Mvelopes Personal, can help you manage all your investment
accounts from one spot, quickly and easily.

Take advantage of the New Year and get on the path to
financial fitness!