| 10 Financial Resolutions for 2003 |
| A Practical Guide to Putting Your Life on Track for Success |
Financial Resolution 1: Know What You Want
Have a
clear, concise financial goal for the year. It isn’t good enough to say,
“I want to have my credit card paid down and more money in the bank”.
Instead, you should say, “I have the balance on my credit card paid down
to $0, over $5,000 in my savings account, and an IRA containing 50
shares of Coca-Cola.”
Financial Resolution 2: Prioritize Your Debts
Not all debt is created equal. Make a list of your liabilities and
organize them by the annual interest rate. Those with the highest
rates [most likely your credit card debt] should be paid off
immediately. It does no good to invest money while you are paying
19%+ each year. In a lot of cases, the wisest course of action is
to sell any certificate of deposits, savings bonds or other cash
holdings and use them to pay the balance. Why? If you owe
$10,000 on your credit card and pay 19% interest annually [$1,900 per
year], while at the same time, own a $10,000 certificate of deposit at a
bank, paying you 4% interest [$400 a year], you would actually save
yourself $1,500 a year by paying the debt!
Financial Resolution 3: Open an IRA
If you
haven't done so already, open an individual retirement account [or IRA
for short]. Your financial planner or accountant should be able to
tell you whether a Traditional or Roth IRA is better for your specific
needs. Both offer important tax advantages that can add up to a
lot of money by retirement.
Financial Resolution 4: Enroll in an Automatic Savings Plan
Automatic
savings plans are now offered for everything from brokerage accounts to
savings bonds. Simply call your broker and tell them you want a
certain amount of money withdrawn from your checking or savings account
each month, on a certain date, and deposited into your investment
account. This way, you are forced to save because the cash is
drawn directly from your bank before you can get your hands on it.
Investors can often sign up for ASP's through a company's direct stock
purchase plan. In these instances, the money is withdrawn and used
to purchase additional shares of stock in the particular company.
The United States government offers a similar service to those
interested in investing in savings bonds.
Financial Resolution 5: Close Unnecessary Accounts
Banks and financial institutions charge fees for everything under the
sun. Is it really necessary to have several credit or checking accounts?
Although there are exceptions, in the vast majority of cases the answer
is a firm no! To put things into perspective: imagine your bank charges
you $8 each month for your checking account. In thirty years, that $8
will have added up to more than $8,500 after taxes!*
Financial Resolution 6: Make Money Doing What You Love
Most people can name at least one thing they are truly passionate about.
One of the ways to enjoy your work is to only do the things you enjoy.
Find a way to turn your passions and hobbies into profit. The world is
full of amazing jobs such as full-time ice cream tasters and video game
testers!
Financial Resolution 7: Collect Your Change
Any time you make purchases with cash, only spend whole dollar amounts.
If you go to the grocery store and your ticket comes to $67.39, pay $70
in cash and pocket the change. The first thing you should do when you go
home is throw the money in a large container [empty Culligan water jugs
are perfect]. If you absolutely adhere to this policy and don’t spend
any of the change, you are likely to save several thousand dollars over
the course of a year. Use the money to pay down debt, buy stocks and
bonds, or go on vacation
Financial Resolution 8: Give Money Away
I’ve said this before and I’ll say it again; one of the most effective
ways to realize the value of money is to give it away. The next time you
get your paycheck, take 5% of your salary in cash [the greenbacks in
your pocket will make it seem far more real than if you simply wrote a
check or used a debit card]. Walk into a Starbucks and anonymously pay
for the other customers in line. If you pass a child in Wal-Mart staring
at a new video game, take out your wallet and buy it for them. In both
cases, the recipients are sure to remember your kindness for years to
come. It is a powerful and effective way to change other people’s lives
for the better while giving you a better sense of freedom financially.
Suddenly, you realize just how much promise $20 contains.
Financial Resolution 9: Begin Using Personal
Finance Software
Knowledge is power. If I asked ten people on the street how much they
spent last year on books, or movie tickets, nine of them probably
couldn’t answer. With a few keystrokes, however, someone using personal
finance software such as Microsoft Money or Quicken can find out.
Personally, I print a report at the end of every December and spend an
evening studying and going over my income and expenditures for the year.
I’m often surprised at the amount I spend on small items such as ATM
bank fees and cappuccino.
Financial Resolution 10: Read a Financial Book
Each Month
If you want to learn to cook, you read cookbooks. If you want to learn
to fix an engine, you ask someone to show you. The printed word is
amazing in that it allows you to communicate directly with the most
brilliant financial minds of the past century. By picking up a copy of
The Intelligent Investor, One Up on Wall Street, or Common Stocks and
Uncommon Profits, you can be taught how to value investments, set up
your portfolio, and spot the characteristics of a classic growth stock
directly from the men who did it most successfully. Through the written
word, their death, retirement, or physical location is rendered
meaningless; their ideas, philosophies, and techniques live on. It’s as
if you are inviting Benjamin Graham or Philip Fisher into your home, any
time you choose, at a moment’s notice, simply by picking up a copy of
their work and turning the page. Consistently applying yourself to learn
as much as you can about the financial markets, the nature of money and
investments in general is absolutely essential to creating long-term
wealth.
Copyright © 2002 Joshua Kennon