Ten Financial New-Year’s Resolutions

Nearly every list of New-Year’s resolutions contains at least one point focused on finance. Since money determines so much of what we are able to do in life, I decided to write this article on how we can improve our financial pictures in the coming year. Here are ten financial resolutions to help us get started:

1. Be Satisfied With What You Have.

If you are unemployed, underemployed, or in debt, something positive must happen before you will be able to apply this suggestion. For those of us who are fortunate enough to have roofs over our heads, food on the table, and steady incomes, being satisfied is an important part of creating financial stability. Declaring that we have enough is the first step in becoming financially solvent.

2. Review Your Finances Monthly.

Time passes, and before you know it, your credit-card debt has increased, your certificates of deposit have converted to lower interest rates, and your retirement-account asset allocation has gotten out of whack. A monthly review of assets and liabilities will make you aware of changes and allow you to make adjustments along the way.

3. Stay Abreast Of The Financial News.

In the agrarian days of the United States, people observed the clouds, noted the wind direction, studied the moon’s phases, and read the Farmers’ Almanac in an attempt to predict the weather and preserve their land, crops, and animals. Our need to monitor events that may affect us has not changed. Watching a financial news program, reading a stock-market periodical, and searching the Internet for financial wisdom will help you protect your assets from market downturns.

4. Fully Contribute To IRA And 401(k) Accounts.

In the midst of the 1990s stock-market expansion, allowable retirement-account contributions seemed adequate, largely because of inflated notions about the income that one could generate with the money. Now, with low interest rates, a sluggish stock market, and the prospect of a protracted recession, retirement-account contributions may generate barely enough wealth to reach reasonable distribution levels in our later years. More than ever before, maxing out the allowable contributions is a must. Doing so may not guarantee all the retirement income you hope for, but it will provide one of several pillars upon which your financial future rests.

5. Don’t Let Your Ego Get The Best Of You.

One of the biggest contributors to profligate spending is ego. Some folks think that their children need everything, that expensive weddings show status, that jazzy cars are necessities, and that big houses indicate success. Freeing yourself from such myths will help you achieve your financial goals in time to retire comfortably and securely.

6. Develop A Four-Pronged Retirement Plan.

Relying on a single income source for retirement is risky. A solid retirement plan should be based on four income streams. The first income stream is a house that is paid for. The income comes in the form of rent that you don’t have to cough up each month. The second income stream is social security, and the third is an IRA or 401(k) account from which you will draw money during retirement. These three prongs of retirement are fundamental, but if you want true financial security, a fourth prong is necessary, and it may take the form of rental property, dividend-paying stocks, bonds, annuities, or other long-term financial instrument. Only when you have secured positions in all four areas will your retirement plan be balanced and complete.

7. Calculate How Much You’ll Need To Retire.

In the days of my grandparents, working folks retired at 65 and died in their early 70s, so retirement plans didn’t have to pay out for long. Most people paid off their homes early, and the complicated retirement-planning questions that arise nowadays rarely came up. Today, people retire earlier and live longer. Many baby boomers will live 30 years or more in retirement.

We need to be realistic about how long we may live and how much we’ll need to make it to the end. At a 4% return, one must accumulate $1,000,000 to retire on an annual income of $40,000 without dipping into base assets. If you spend more than that, you risk running out of money when you need it most and are the least able to earn it. Many theories and formulas exist for withdrawing varying amounts of core assets as you go, but they are all burdened with the same fundamental problem—that we don’t know how long we shall live. The safest, most prudent thing to do is leave your core assets alone and live on the income they generate.

8. Study And Train For The Future.

Globalization is wreaking havoc with our ability to create, protect, and market new products. When an idea surfaces, the word passes like lightning to the remotest corners of the planet, and bright minds everywhere glom onto it with the hope of developing something themselves. Although this souped-up competition will render marvelous products and services at reasonable prices, it also means that we must constantly develop new skills. The world is advancing at a breakneck pace, and keeping up with the changes is imperative for survival.

9. Postpone Unnecessary Expenses.

Unemployment is high, we are in a world-wide recession, stock markets are unsteady, and financial institutions have lost people’s confidence. The time is right for putting the brakes on excess spending. Postponing purchases, like buying a new car or updating the living-room furniture, will help you gain the equilibrium you need to move into the new decade on solid financial footing.

10. Be Prepared For The Unexpected.

No one can be ready for every contingency, but you can do some things to insulate yourself and your family from financial disaster. Putting limits on dining out, vacation trips, credit-card use, and impulse spending will help you develop a cushion of funds to get through the tough times that may lie ahead. Fully paying credit-card bills each month will also contribute to controlling your outgo.

After reviewing these suggestions for making 2011 a rational financial year, you may have ideas to add to the list. I encourage you to do so and to be creative as you make your financial plans. We are moving rapidly into an exciting global existence, but with that excitement comes uncertainty. Some people may benefit from the unification and competition that are taking place, but without planning, others may not. With work and sound thinking, however, we can adapt to the changes and enjoy the fruits of our evolving world.
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