Nine New Year’s Resolutions to Get Your Finances in Order

1. Automate your finances. If it’s not easy, most of us simply won’t do it. Make it easy on yourself by using a secure online budgeting system, like Mvelopes Personal, to track and categorize your expenses. Use online bill pay to save time and money.

2. Create a spending plan. Determine how much you plan on spending, and where you want to spend it. Give yourself some flexibility to allow for some of those impulse buys without ruining your overall plan. Spending management is simply proactively budgeting your money.

3. Save at least ten percent of your income. If you don’t pay yourself first, there won’t be any left over at the end of the month to save. Set up an automatic transfer to a savings account to make it easy.

4. Pay at least the minimum on your credit cards, and pay off all that you can. Making at least the minimum payment on time accounts for 35 percent of your credit score. Paying off the entire balance each month can save you hundreds in interest.

5. Contribute enough to your 401(k) to get the maximum company match. Your kids can get help to pay for college, but no one will help pay for your retirement. If you’re not taking advantage of a company match, you’re turning down a yearly bonus from your employer.

6. Review and readjust your portfolio. Make sure that no single stock comprises more than five percent of your portfolio. As your different investments perform differently, your distribution will become skewed. Readjust your holdings to match your desired distribution.

7. Start an emergency fund. You should have three to six months’ worth of expenses set aside in an easily accessible account to cover mortgage, food, car payments and other necessities in an emergency. Keep it separate from other funds to avoid spending it.

8. Check your credit reports. You’re entitled to one free copy of your credit report from each of the three credit-reporting agencies at your request. Stagger the reports, receiving one every four months to keep an up-to-date view of your credit throughout the year.

9. Review your insurance policies and update as needed. Review your life, health, home, auto and disability insurance policies. Make sure you have cost replacement coverage on home and auto insurance, as well as good liability coverage. Make sure your home insurance reflects the current value of your home.

10 Questions to Check your Financial Health for the New Year

With the New Year quickly approaching, millions of Americans are preparing to make resolutions to improve both their waste line and their bottom line. If you’re looking to improve your financial fitness this year, it’s important to first understand how you’re already doing. The following quiz, taken from my Money for Life Success Planner, will help you understand how you’re doing financially, and where you can improve.

1. What percentage of your income do you save each month?
   a. 10 percent or more
   b. Less than 10 percent
   c. None

2. How often do you use a monthly budget to track and plan your spending?
   a. Almost always
   b. Sometimes
   c. Never

3. When you make a purchase using a credit card, how quickly do you usually pay off the entire balance?
   a. Immediately or before the end of the month
   b. Between one and three months
   c. I usually carry a balance from month to month

4. How many times during the last six months have you paid a bill late?
   a. None
   b. One to five
   c. Six or more

5. Most of your major purchases are…
   a. planned in advance, with money set aside to cover them
   b. planned even though the funds aren’t always there to pay for them
   c. unplanned or spontaneous

6. If you needed to come up with money quickly to pay for a major home repair or an emergency, what source would you use?
   a. Funds already on hand
   b. Funds from available credit
   c. No funds available without establishing credit

7. If you lost your job or main source of income, how long could you provide for your basic needs and meet your financial obligations?
   a. Three or more months
   b. One to two months
   c. Less than one month

8. The insurance I have to cover the loss of major assets including real estate, autos and personal property is…
   a. enough to cover replacement costs
   b. less than enough to cover replacement costs
   c. unsure or don’t have coverage

9. When was the last time you reviewed and adjusted your retirement plan?
   a. Within the last year
   b. In the last five years
   c. I don’t have any savings for retirement

10. When you think about your ability to meet future financial obligations, you feel…
    a. completely at ease
    b. moderately concerned
    c. very concerned

Give yourself five points for each time you answered “a,” three points for each “b,” and one point for each “c,” then total your score. If you scored between 40 and 50, you’re in great financial shape. If you scored between 20 and 39, you are off to a good start, but could still address some weaker areas. If you scored below 20, you need to rethink your financial plan, and make some big changes.

Regardless of how you scored, now is a great time to sit down and examine your financial situation. Write down your financial goals, and develop a plan of how to accomplish each one.

Three Financial Resolutions You Can’t Afford Not to Make This Year

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.