Be Resolute to Improve Your Financial Health

Ahhh, the festive free-for-all of the holiday season has come and gone. We did our best to control our intake of sugar plums (whatever the heck they are) and outtake of holiday spending, but our best efforts sometimes come up short.

Well, that’s what New Years resolutions are for, right? It’s your chance at a fresh start. So what’s it gonna be? Lose weight? Exercise more? Stop smoking? As you sit in front of a blank personal improvement list masquerading as New Years resolutions, be sure you include a line or two about improving your financial health.

Your financial health is a key component to a happy New Year. Money may not buy happiness, but it can provide a very calming peace of mind. You probably have a pretty good idea of where you’d like to be financially, but it’s hard to stay in the game without a game plan. That’s why you need to map out a strategy for the upcoming year.

What can you do to make 2010 a sound financial year for you and your family? Saving is probably the single best thing you can do to ensure a healthy financial picture.

It may sound basic, but did you know that until our latest economic crisis, Americans had a NEGATVE savings rate? That simply means we were spending more than we made. There are a few different facets of saving to consider, so let’s look at a few:

1. Live within your means. This tackles the problem listed above. If you hope to save successfully, you must spend less than you make. Develop a workable budget and stick with it
2. Make saving automatic. Out of sight, out of mind. If you set up an automatic savings plan that takes money from an account or paycheck automatically each month/week, you’ll be less likely to miss it. Have the funds transferred to a regular or special savings account set aside for a specific goal. Take your pick and start saving
3. Add liquidity. This simply means you should put aside enough money to help you through any rough financial times you could encounter. An emergency fund. If you live paycheck-to-paycheck, you could be just one paycheck away from serious financial turmoil. The good part is, you don’t have to put away hundreds of dollars at a time. Even small amounts add up. The key is to contribute consistently. You’ll sleep more soundly knowing you have something to fall back on should you come upon a financial pothole on your road to happiness
4. Change is good. When you receive change during a transaction, keep it and put it in a jar. It will add up quicker than you might think
   
   
5. Think retirement. If you haven’t already taken advantage of an employer’s retirement plan (401k) and/or tax-deferred retirement savings plan such as a Roth IRA, do it now. The sooner you start, the sooner the magic of compound interest works in your favor. If you already contribute to a retirement plan, up the contribution by 1%. Click here for information about a big tax opportunity for IRA conversions in 2010.

Here are some other things to think about when drawing up a plan for 2010:

• Erase credit card debt. According to the 2007 Survey of Consumer Finance published by the Federal Reserve, families with credit cards carried an average balance of $7,300. With the credit card landscape changing after the passage of the Credit CARD Act of 2009, it’s important to get a handle on your credit card debt. Do your best to pay it down. Start with paying off the card with the highest interest rate. Resist the urge to buy something with your card that you won’t be able to pay off at the end of the month. If you have more than two cards, cut up at least one. Don’t cancel it (it could lower your credit score). Cutting up a card or two will lower the temptation to use it.
   
• Be willing to learn. If you want to learn how to cook, you read a cookbook. Well, the same goes for learning about personal finance. Make it a habit to read up on this subject. There are millions of articles on the Internet, or books you can buy. The point is, you can learn from the mistakes and/or successes of others. If they’re willing to share, be willing to learn.

The new year is a perfect time to reflect on what you have and devise a plan to attain what you want. The key is to make these financial resolutions reachable. You don’t want to start the year with an optimism-killing thud. Set small, meaningful goals that provide a sense of accomplishment. You can always ramp them up when your situation improves. Work hard to stick with your plans. In the end, you’ll be able to look back at 2010 with the pride of a job well done. Happy New Year, and good luck!