And how to actually keep them
Every January, millions of Americans determine to shed a few pounds and to finally get their finances in order. Unfortunately, most estimates indicate that less than 30 percent of those well-intentioned resolutions make it through the year. The reason most resolutions fail is because a plan is never laid out to help achieve the goal. If you are serious about finally getting your finances in order this year, here are the three resolutions you need to make, along with easy steps to help you actually keep them.
1. Automate your finances.
Why it’s important: If it’s not easy, most of us will quit before the New Year is a month old. The key to effectively managing your money is tracking where it’s going, and how much money you have allocated for specific categories. Paper and pen will do the trick, but be honest with yourself, do you plan on keeping that paper and pen with you for the next year, logging each and every purchase no matter how large or small? The Internet allows you to track all your accounts with no manual effort, and will even do all the math for you. If it’s automatic, you won’t get lazy, and you won’t forget to do it either.
Managing your finances online may also help keep your money safe. According to a 2005 study on identity theft by the Better Business Bureau and Javelin Strategy and Research, “electronic monitoring provides greater safety by sharply reducing time to detection, and potentially eliminates the paper records and mail that are possible avenues to many identity theft cases.”
How to keep your resolution: Set up a secure online budgeting system like Mvelopes Personal (www.mvelopes.com). The subscription service will automatically track your expenses from multiple accounts and credit cards as well as provide you with balances of various savings and spending categories. Seeing where you are spending your money will let you know where you can cut back. Seeing your net worth rise in the net worth tracking feature will keep you motivated. With a 30-day free trial, if you do give up by February, you can simply call and cancel.
Set up automatic transfers with your bank to pay your mortgage and other fixed payments to avoid missing a payment or incurring late fees. Use online bill pay to save on envelopes, stamps, and time (Mvelopes Personal includes a free bill pay service, and most banks now offer bill pay for little or no extra). Set up an automatic transfer to a savings or money market account once a month. Find a high interest bearing account to maximize your savings. Many online banks, such as EmigrantDirect, are currently offering three to four percent APY on savings accounts.
2. Stop paying interest and start earning it.
Why it’s important: According to Bankrate.com, if you charge $1,000 on your credit card, and pay only the minimum payment (assuming an interest rate of 15 percent and a 2.5 percent minimum payment), it will take over 10 years to pay off and cost an additional $757.98 in interest. Conversely, if you were to take only the amount you would be paying in interest each month on that loan and invest it in an account earning ten percent, it would grow to $1,594.92 over that 10 years.
Even if you’ve gotten deep into credit card debt and can’t pay it off quickly, you can save a bundle by lowering your rate, and paying more than the minimum. By dropping the interest rate on your credit card in the example above to 11 percent and paying only $30 a month, you could pay off that $1,000 in just over three years with only $198.85 in interest.
How to keep your resolution: Always pay at least the minimum payment on time, and if at all possible, pay your credit card balance in full each month. Mvelopes Personal has a credit card tracking feature that automatically sets aside the exact purchase amount each time a purchase is made on your credit card to help you pay off the balance in full each month.
If you are carrying a balance from month to month, cut your spending to a minimum and allocate all the extra money you can to paying off your debt. Use the debt roll down principle to quickly reduce your debt. Make a list of all your consumer debts and prioritize them in order of interest (highest to lowest). Pay the minimum on all your debts and pay as much as you can on the one with the highest rate. Once your first debt is paid off, roll that payment amount into the next debt on your list.
Call your credit card issuer and try to negotiate a lower rate. If they decline, let them know you plan to roll your balance to another card and cancel the card with the higher rate. If your credit history is clean, you should be able to find a card with a 0 percent introductory APR. Don’t make any purchases on the new card as often the introductory period ends as soon as you make your first purchase. Be careful the interest rate doesn’t skyrocket after the introductory period, and make sure you cancel the card with the higher rate to avoid simply running up a larger debt load. Check www.creditcards.com to compare credit card offers.
Check your credit reports to make sure they’re accurate. The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. You can order your reports online at www.annualcreditreports.com or by calling 1-877-322-8228.
3. Stop procrastinating saving for your retirement.
Why it’s important: Time can be your biggest ally when investing for retirement. For example, if you begin at age 25 and invest $4,000 annually in a portfolio that provides a 10 percent average annual return, then stop contributing after 10 years, your investment will grow to $1,365,818.31 by the time you retire at 65. However, if you procrastinate investing until you are 35, then contribute $4,000 annually in a portfolio with the same 10 percent average annual return, and continue to contribute every year for 30 years until retiring at 65, your investment will only grow to $759,775.11. Even though you contributed $80,000 more over the life of the investment in the second scenario, you still ended up with $600,000 less.
How to keep your resolution: Contribute at least enough to your 401(k) to get the maximum company match. Talk to your HR department to find out the details of your company’s plan. If your employer offers a company match and you are not contributing to your plan, you are essentially turning down a bonus every year. And since your contributions are taken out on a pre-tax basis, as you increase your contribution, your taxable income decreases, meaning you pay less in taxes.
Open a Roth IRA. Your money grows tax-deferred, and just so long as the IRA has been open 5 years or more and you are at least 59 ½ when you start to withdraw, there are no tax penalties for withdrawal. The maximum annual contribution increases to $4,500 this year.
Make sure that no more than five percent of your portfolio for either your 401(k) or your Roth IRA is in a single stock. Diversifying is the best way to ensure maximum growth over time while minimizing the risk and volatility of the market. Select an index fund or target fund for an easy option that requires little oversight. Fidelity, Vanguard and T. Row Price are among the largest purveyors of mutual funds and all offer excellent funds for a variety of investing styles.
From start to finish. Regardless of where you stand financially, the New Year provides an excellent opportunity to review your finances and make improvements. Make sure that this year you don’t just start fresh, but that you also finish strong.
Thursday, December 15, 2005
Wednesday, December 07, 2005
The Real Magic of The Holiday Season
9 Practical Tips to Stay Debt-Free This Year
There’s something magical about this time of year when everything is trimmed with tinsel and various shades of red and green. But if you don’t have a spending plan for the holidays, you’ll likely end the year with too little green and deep in the red.
Here are nine smart money tips to make sure the magic this year doesn’t result in a disappearing act by your bank account.
1. Create a spending plan now. There’s no better gift you can give your family than financial stability. Determine how much you can reasonably afford to spend this year, then determine how much to spend on each individual, not the other way around. Don’t forget to include amounts for decorations, parties, and some of those ‘unexpected’ expenses.
2. Track your expenses to stick with your plan. If you wait until you get your credit card bill in January to see how you did with your plan, you’re almost sure to overspend. Track your expenses using online budgeting software like Mvelopes Personal, or a paper-based envelope budgeting system or spreadsheet, to keep an up-to-date view of your spending. Compare your actual spending to your plan often to make sure you stay within the limits you’ve set.
3. Set a deadline for paying off all holiday expenses. If you charge $800 this holiday season, and then make only the minimum payment on that debt, it would take almost 11 years to pay off and end up costing more than twice the original price (assuming a minimum payment of 2.5% or $10 and an annual interest rate of 18%). Mvelopes Personal (www.mvelopes.com) has a credit card feature designed to help set aside the money to cover purchases made with a credit card so you can pay the bill in full each month. You don’t want to still be paying for the holidays next August.
4. Trim the list along with the tree. In addition to trimming the tree this year, trim your gift list. Instead of sending knick-knacks to everyone you know, send a thoughtful note expressing your appreciation for their friendship. Spend the money you save instead to buy gifts for your closest friends and family or contribute it to your child’s college savings fund.
5. Send an e-card instead. You’ll save on postage and stationery, and many e-cards include animation and music and even interactive games, making them more fun than their paper counterparts. You can include a personalized message, and won’t have to worry about it getting there on time. Try hallmark.com or 123greatings.com for fun, free e-cards.
6. Get creative with your gifts. The best gifts require more thought than money. Gather up some old photographs and frame them. Create a digital photo calendar. Give coupons for babysitting, a back massage, or a day free of changing diapers. Refinish that old rocking chair. Make a warm batch of your famous chocolate chip cookies, or record yourself reading a favorite story for a niece or nephew far away. People will appreciate the personal touch and thoughtfulness of the gift.
7. Shop online. You’ll save time, gas money and possibly your sanity as you avoid the crowded parking lots and long lines. Many retailers offer free shipping for purchases over a certain dollar amount. Have the item shipped directly to the recipient to avoid an extra trip to the post office. Make sure you shop early to avoid paying expensive overnight shipping costs.
8. Step back to clear your head. It’s easy to get lost in the hustle and bustle of the busiest time of the year. Schedule some time to go ice-skating, see the lights, take a warm bath or enjoy a good book and a cup of hot chocolate in front of the fire. Taking a step back can help you clear your head to avoid getting caught up in a frantic spending frenzy.
9. Give to charity. One of the most common complaints about this time of year is that consumerism has hijacked the season. The remedy? Give to those less fortunate. Giving to charity helps keep needs and wants in perspective during the holiday frenzy. Give gently used clothing and blankets to a local shelter or the Salvation Army, or donate some time wrapping and distributing gifts for Toys for Tots or another organization. It may help your children – and you – discover the real magic of the holiday season.
There’s something magical about this time of year when everything is trimmed with tinsel and various shades of red and green. But if you don’t have a spending plan for the holidays, you’ll likely end the year with too little green and deep in the red.
Here are nine smart money tips to make sure the magic this year doesn’t result in a disappearing act by your bank account.
1. Create a spending plan now. There’s no better gift you can give your family than financial stability. Determine how much you can reasonably afford to spend this year, then determine how much to spend on each individual, not the other way around. Don’t forget to include amounts for decorations, parties, and some of those ‘unexpected’ expenses.
2. Track your expenses to stick with your plan. If you wait until you get your credit card bill in January to see how you did with your plan, you’re almost sure to overspend. Track your expenses using online budgeting software like Mvelopes Personal, or a paper-based envelope budgeting system or spreadsheet, to keep an up-to-date view of your spending. Compare your actual spending to your plan often to make sure you stay within the limits you’ve set.
3. Set a deadline for paying off all holiday expenses. If you charge $800 this holiday season, and then make only the minimum payment on that debt, it would take almost 11 years to pay off and end up costing more than twice the original price (assuming a minimum payment of 2.5% or $10 and an annual interest rate of 18%). Mvelopes Personal (www.mvelopes.com) has a credit card feature designed to help set aside the money to cover purchases made with a credit card so you can pay the bill in full each month. You don’t want to still be paying for the holidays next August.
4. Trim the list along with the tree. In addition to trimming the tree this year, trim your gift list. Instead of sending knick-knacks to everyone you know, send a thoughtful note expressing your appreciation for their friendship. Spend the money you save instead to buy gifts for your closest friends and family or contribute it to your child’s college savings fund.
5. Send an e-card instead. You’ll save on postage and stationery, and many e-cards include animation and music and even interactive games, making them more fun than their paper counterparts. You can include a personalized message, and won’t have to worry about it getting there on time. Try hallmark.com or 123greatings.com for fun, free e-cards.
6. Get creative with your gifts. The best gifts require more thought than money. Gather up some old photographs and frame them. Create a digital photo calendar. Give coupons for babysitting, a back massage, or a day free of changing diapers. Refinish that old rocking chair. Make a warm batch of your famous chocolate chip cookies, or record yourself reading a favorite story for a niece or nephew far away. People will appreciate the personal touch and thoughtfulness of the gift.
7. Shop online. You’ll save time, gas money and possibly your sanity as you avoid the crowded parking lots and long lines. Many retailers offer free shipping for purchases over a certain dollar amount. Have the item shipped directly to the recipient to avoid an extra trip to the post office. Make sure you shop early to avoid paying expensive overnight shipping costs.
8. Step back to clear your head. It’s easy to get lost in the hustle and bustle of the busiest time of the year. Schedule some time to go ice-skating, see the lights, take a warm bath or enjoy a good book and a cup of hot chocolate in front of the fire. Taking a step back can help you clear your head to avoid getting caught up in a frantic spending frenzy.
9. Give to charity. One of the most common complaints about this time of year is that consumerism has hijacked the season. The remedy? Give to those less fortunate. Giving to charity helps keep needs and wants in perspective during the holiday frenzy. Give gently used clothing and blankets to a local shelter or the Salvation Army, or donate some time wrapping and distributing gifts for Toys for Tots or another organization. It may help your children – and you – discover the real magic of the holiday season.
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