Last Updated: December 13, 2010
The holiday season brings considerable focus on money issues. People are generally spending more around this time of year, and if one’s financial circumstances are precarious, it’s a time of considerable stress.
In fact, the American Psychological Association’s Stress in America survey, released last month, revealed that money (76 percent), work (70 percent) and the economy (65 percent) remain the most often-cited sources of stress for Americans. That’s why it’s a good idea to make some specific money resolutions for 2011.
If financial stress is part of your life, resolve to extinguish it over the next year. Consider the following resolutions to lead a better financial life in 2011.
- Put your most important goals on paper: What do you really want out of life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom — to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them formality and a starting point for the planning you must do.
- Understand how much risk you can really tolerate: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. Even though the market has recovered from the crash of 2008, it’s worth revisiting your capacity for risk.
- Track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order. Free resources like Mint.com offer financial planning software, but always check the security of your data. By tracking your spending, you will be able to distinguish the fixed committed expenses from the discretionary expenses.
- Cut back on non-essential spending: Whether it’s designer coffee, nightly carryout or too many trips to the mall, once you start to track your spending, it will be easier to identify areas where you can make adjustments. You don’t have to give up treats completely — just make them treats.
- Get some professional advice: Maybe you’ve always completed your taxes alone and put your faith in your employer’s retirement plans to chart your financial future. If you’re like most people in this position, your goals are still far from reach. Get references for qualified tax professionals and consider consulting with a financial planning professional to discuss your current retirement savings and what steps you can take to improve your situation.
- Put the credit cards away: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum — on time, every month. Once your cards are paid off, don’t close them — that could have an adverse effect on your credit score. Just put small repeat purchases on them that you can pay off in total at the end of the month to keep them active. Oh, and pay cash from now on.
- Save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least five to 10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for, especially if your employer will match all or part of that contribution.
- Get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards, apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan. Just don’t short your retirement investment plans to accomplish this.
- Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it.
- Redefine the way you shop for essentials: Most people were forced to change their shopping habits during the recession, but there are still ways to fine-tune. As a suggestion, get a legal pad and create a centralized shopping list — use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), and note bigger expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.
- Attack that miscellaneous column: Do you really need premium cable? How much are you paying for your Internet service? Consider bundling your Internet, cable and telephone service with one provider. Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut — or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent in savings every time you cut and start setting that money aside on a regular basis.
- Bid out your insurance: All insurance you buy for yourself — home, auto, health and beyond — should be bid out once a year. Home and auto should be bought together because the savings are generally better.
- Prescription drugs: Consult with your primary care physician to determine if any of your medication has generic formulary available.