It's a new year. Clean the slate and start over. Here are some smart financial resolutions for all of us to consider starting with the most important. We suggest picking one or two, discussing them with a financial planner and jumping in with both feet. After you've chosen a resolution, be sure to read this month's Debt Matters article on making New Year's resolutions a reality. These are the goals. But goals are nothing without a plan.1Pay off your bad debt. You knew this one had to be in the top five. Of course we're not talking about mortgages, car loans and student loans, which have low-interest payments, are likely tax deductible, enable you to increase your wealth-building power and pay for something that few of us can pay for up front. Bad debt is not tax deductible, with high financing costs and gives us something that doesn't help us build wealth in other ways. Too many Americans pay for things they can't afford by paying for financing they can't afford. Little can happen until you are off the debt treadmill.
2Build an emergency fund. This is priority No. 2 because having an emergency fund is the first line of defense against some problem running up a credit card again. If you have an emergency fund and your mechanic tells you need a new engine, you can tap your emergency fund and then pay yourself back without paying a dime in finance charges.
3Save something for retirement. Did you know the difference between a millionaire and a penniless person is about $3,860 a year? Consider this: If a 25-year-old invests $3,860 each year at 8% interest in a tax-sheltered account, they will have $1 million before taxes at age 65. Even if you can't save that much, at least by saving $1,000, you are building wealth. Start with your 401(k) especially if you receive a match. If your employer doesn't offer a 401(k), talk to a financial institution about opening an IRA or Roth IRA, which are also tax-sheltered. See this month's retirement article for more on this.
4Get organized. Organizing your finances is a nice resolution because it can immediately deliver peace of mind. But it made Debt Matters' top five because it can keep you out of a lot of trouble. Missed payments damage your credit. Lost information can be critical when it comes to insurance claims. And late payments can cost you in increased fees and punitive interest rates. All in all, disorganization is a quadruple whammy.
5Get smart. Knowledge alone won't make our financial dreams come true. It takes discipline. But we think knowledge breeds discipline. If you can see clearly your goals and the steps to achieve them, it makes it much easier to make the smart, disciplined moves. Resolve to read one book and one financial magazine a month and next year, you'll have tons of exciting ideas for New Year's resolutions.
Still looking for ideas? Here are a few that just missed our top five:
- Track all your spending.
- Build a budget and stick to it.
- Make an extra mortgage payment.
- Lower your energy costs.
- Limit dining out.
- Work toward a promotion or raise.
