It’s that time of year when people make New Years’ resolutions. Me too! My goals include losing 17 pounds, learning a foreign language, finishing up work on the Great American Novel (I have a title!) and getting my financial house in order.
On the latter point, I asked financial planner Arthur Stein if he’d do a guest column on the subject of financial news years’ resolutions. Here’s what he says:
Are You Ready for a New Financial You? By Arthur Stein, CFP®
New Year’s resolutions don’t have a very good reputation. We all have memories of commitments made and then dropped after several trips to the gym, some meals where we didn’t have desserts or a few trinkets we didn’t buy.
Your financial New Year’s resolutions don’t have to be like that. If you choose the right ones, they will be achievable and beneficial. In fact, the benefits could last the rest of your life.
Here are some examples. They won’t be relevant to everyone, but probably everyone will find at least one to be worthwhile.
First, pay off existing credit card debt and don’t incur any more. If you cannot afford something, don’t buy it. If you overspent on your credit cards in the past, now is the time to make payback a priority. Because of on-going problems in global credit markets, credit card debt might be more expensive and less available in the future.
Build up an emergency fund equal to three to six months of expenses. Use savings accounts and money market funds to hold these dollars. You want them safe and easily available.
Understand your mortgage. Is it fixed or adjustable? What are the terms? If adjustable, when will it reset, how much might your new payment be and what would it cost to get a fixed rate mortgage?
Review your life, long-term care and disability income insurance coverage. If you needed the benefits, would you have enough? Younger federal employees should consider supplemental disability insurance.
Check your credit report to insure the information is accurate and complete. Correct any mistakes. Your credit score affects how much you pay to borrow money and whether you will even qualify for a loan. According to the Federal Trade Commission, to check your credit reports for free, go to www.annualcreditreport.com or call 1-877-322-8228. Do not contact the three nationwide consumer reporting companies individually.
Review the allocations in your TSP and other investment accounts. Make sure that short and long-term investments are invested in an appropriate manner.
The two themes are know your current financial situation and protect yourself against unexpected events. This won’t be a lot of work and it’s a good excuse for not going to the gym.
Nearly Useless Factoid
You may feel like you packed on five or ten pounds over the holidays, but if you’re “normal” it’s not nearly that bad. According to a study a few years ago, you probably gained about a pound over the past month and a half. That’s the good news. Think how easy it’s going to be to lose that pound. The bad news is that most of us don’t bother losing it. It’s like compound interest: it really adds up over the years.