Eight Financial Resolutions You Should Make
David Godsted, Director of Outreach, Networks Financial Institute
It’s a new year, and while the time when people traditionally make resolutions to improve themselves has passed, reality may be setting in.
Often, these resolutions revolve around health, for example losing weight and exercising more. Of course, your health is very important, but what other factor impacts your quality of life more than your finances?
If you are feeling like your money is controlling your life (instead of the other way around), now is the perfect time to rethink your New Year’s resolutions and turn them into personal financial resolutions that could have a positive impact on the rest of your life. Like any other type of resolution, they will only work if you have the discipline to stick with them.
1. Resolve to set long term financial goals.
-– Did you know that most retirement experts agree that you’ll need from 70-80% of your final income at retirement to maintain your lifestyle in your post-retirement years? You’ll need to start saving now in order to have at least that much money on hand as you enter your golden years. Ask yourself, do you want to work after you retire? Where do you want to live? Will you want to maintain your independence? Write your long term goals down now, and let them guide you as you make financial choices in the coming years. It’s never too early to make this resolution.
2. Resolve to create a budget you can live with.
-– You’ve set your long term goals. Establishing a plan for getting there will require realistic, annual budgets. If your family normally spends about $100 per week on food, setting a goal of spending only $50 per week on food may frustrate you on this whole ‘saving money’ concept, and may cause your family to revolt! Create a journal of where your money is going each week; that will help you create a realistic budget. Your goal should be to divert a noticeable amount of money into your savings account each year.
3. Resolve to eliminate bad debt from your life.
-– Debt, when managed properly, can help you to manage your financial needs. Taking on a home mortgage is an example of good debt (how many other purchases are you going to make that in all likelihood will appreciate, is a tax deduction, and can be lived in?). Bad debt, notably credit card debt (due to the high interest rates associated with most cards) diverts the money you work so hard to earn towards servicing the debt on purchases that, in many cases, were probably items you didn’t need in the first place. Let this simple rule guide you as you reach for your card: buy only what you can afford to pay off at the end of each month. Also, think twice before taking on debt that can hurt your long term goals. Home equity loans can be appealing for their low interest rates and favorable tax treatment. But, before taking one out, ask yourself, do I really need to make this purchase? Is it worth draining equity out of my house?
4. Resolve to cut out impulse buys by understanding what you really need.
-– Combine the Internet with a credit card, and you have a recipe for temptation. A constant barrage of advertising tempts you to redefine what you want into what you think you need. The television that has served you well for the last few years, and is in fine working order, has been rendered obsolete by the latest flat panel designs, or so the marketers would like you to think. Do you really want to commit two thousand dollars towards this impulse purchase? What if you invested that money instead, and made do with the television you have? Those long-term goals you set for yourself will begin to look more realistic if you do.
5. Resolve to maximize any employer offered retirement plans.
-- Are you in the habit of saying no to free money? If you work for an employer who matches a certain percentage of your retirement fund contributions, and you are not contributing the maximum allowable amount, you are saying “no” to free money. You may have convinced yourself that you can’t afford to make the maximum contribution. First, remember that these contributions are pre-tax – a dollar put towards retirement will reduce your paycheck by LESS than a dollar. Next, take some time now to analyze your monthly expenditures. If you tightened your belt just a little, could you find a few more dollars to contribute to your retirement plan?
6. Resolve to use every savings option that fits your goals and situation.
-- There are many ways to save money beyond your simple savings accounts. Investment options that are simple and “safe” exist if you look for them; college savings accounts are a great tool if that fits your family situation; and, your employer may offer medical savings accounts, and/or childcare savings accounts. There are others opportunities worth considering. Do some homework and take advantage of these “cheap” ways to save for your long-term goals.
7. Resolve to model the financial behavior you’d like your children to practice.
-- A recent survey showed that most parents think that their children behave as though money ‘grows on trees.’ The uncomfortable question parents might need to ask is, ‘where are their children getting this view?’ By holding to the previous resolutions mentioned above, you will be demonstrating responsible financial behavior for your family. When your kids ask for a certain toy, why not ask them to join you in making the same resolutions you’ve made (rather than rushing to buy what they are asking for), in order to understand more clearly how their needs contrast with their wants, and to set their own short and long term goals.
8. Resolve to get educated about your finances.
-- Very few of use were given the opportunity to “study” personal financial management; we learned from experience, brochures and friends. Today’s financial products are complicated and plentiful. It’s hard to know what to do or how – easier to avoid it altogether in most cases. But, do yourself a favor and get smart. Check out these websites to get the information you need:
• My Money.gov - http://www.mymoney.gov/default.shtml - The federal government’s repository for all of the initiatives it is undertaking to educate Americans about personal finance.
• JumpStart - http://www.jumpstart.org/ - This site houses a searchable clearinghouse of financial literacy materials.
• FannieMae Foundation - http://www.fanniemaefoundation.org/publications/educational_tools.shtml - Advice centered on home buying, along with other financial planning tools.
• Federal Reserve Bank of Chicago - http://chicagofed.org/cedric/financial_education_programs_internet_resources.cfm - A comprehensive set of links relating to personal finance.
2006 is a great year to get started or build on what you have already done. For more information about planning and managing your financial health check out http://www.isunetworks.org/financial-literacy.asp . Doing so just may give you the resolve you need to stick with your New Year’s resolutions. After all, it’s your money, and you ought to be the one controlling it.
David Godsted is director of outreach for Networks Financial Institute at Indiana State University. Networks Financial Institute considers financial literacy to be a lifelong learning endeavor, and its financial literacy programming, under the banner of “Cash Counts,” has been created utilizing standards based, stakeholder driven approaches. For more information, visit www.networksfinancialinstitute.org.
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