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Achieving Your Financial Goals

Americans questioned about their resolutions for the New Year consistently name personal finance as a top goal to tackle. Unfortunately, very few people actually achieve their goals.

So on Wednesday's The Early Show, personal financial adviser Ray Martin offers hints on how to follow through on your financial resolutions.

Forget dieting. Most Americans are more concerned about the health of their bank accounts, according to a survey conducted by Intuit, Inc, makers of Quicken personal finance computer software. Sixty-one percent of folks polled listed "getting my personal finances in order" as one of their top three goals for the New Year. The only resolution that was more popular was "spending more time with family and loved ones."

Another poll, conducted by the Marist College Institute for Public Opinion, also found financial concerns among respondents' top resolutions for 2004.

Financial resolutions are usually popular goals, but Martin says they are of a higher priority now than in the past because of the lingering effects of the economic downturn and stock market slump.

Quicken asked people to specify their financial goals; here are the top five resolutions:

  • Reduce credit-card debt
  • Save for retirement
  • Save for children's college
  • Activate online bill pay

While Martin supports these goals, he recommends adding: Get a Will and Obtain adequate insurance coverage.

About 70 percent of Americans don't have a will. According to Martin, any family with kids needs one because that's where parents have the opportunity to name guardians. Also, anyone with assets that are solely in their name should have a will to assign those assets in the event of their death.

In Martin's experience, most people are under-insured and paying too much for the insurance they do have. He urges everyone to closely examine the policies.

Here are Martin's ideas for setting and achieving those important financial resolutions.

Prioritize Your Goals

"Set out to first accomplish the goals that will provide the most financial benefit and free up resources that can then be used to accomplish your other goals," Martin says. "For example, use some income to pay down credit card debt. When the payments are gone, use the income to build up an emergency fund or save for a downpayment on a house or a car."

If you have two goals that seem to be in direct competition with each other, such as saving more for retirement and saving for a home, Martin says you need to figure out which goals are immediate and which are long-term. In this instance, you probably want the home as soon as possible, while you may have years to retirement. Plus, once you have the home, its value will figure into your retirement plans. So, it makes sense to dedicate a larger part of your savings to the house downpayment.

Make a Written Plan

"Any goal that's not written down isn't worth the paper it's written on," Martin says. "Set your goals, keep them realistic, then reduce them to a written summary of: what you want to do; why you want to do it; when you will do it; and how. The key to nailing this is to keep it short and specific." Here is an example:

  • My Goal: Pay down $5,000 of credit card debt.
  • Why I will do it: Getting rid of these monthly payments will enable me to increase my savings.
  • When I will do it: Have paid off in six months, requires paying $833 per month, plus interest.
  • How I will do it: Take on a roommate ($450 per month), work additional job tutoring Spanish ($450 per month) and sell some of unused CD collection on eBay ($250 one time).

    The last part of this will take some work to determine, but don't skimp. By taking the time to really figure out the "how" portion of your goal, you insure that you are setting realistic goals.

    Break Goal into Bite-Sized Pieces

    Remember, the reason people fail to achieve their goals is because they become discouraged. Feeling as though they aren't making any progress, they begin to believe that the goal is impossible, and they quit. You need to establish a process to achieve the goal in several steps. Then, you can mark these steps off your list and track your progress.

    Continuing with the example of paying off debt, Martin suggests the following "bite-sized pieces:"

    First, don't focus on the large amount of $,5000. Instead, focus on the smaller amount of $900 you've decided to pay each month.

    Break that $900 down into smaller pieces, based on how you're going to come up with the money. All of a sudden, you're not focused on $5,000, you're focused on $450, a much more manageable amount. If for some reason you only pay off $700 one month, you're not saying, "Geez, I still owe $4,300." Instead, you're thinking, "I still owe $200." Again, that smaller amount seems within reach.

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