Fixing Your Finances In The New Year

More and more of us are including financial goals among our New Year's resolutions.

Getting a better job, paying down debt and spending less money are some of the most frequently mentioned objectives as we strive to get the New Year off to a good start for our bottom lines.

On The Early Show Wednesday, money maven Ray Martin offered advice to get you off and running toward those goals, and suggested good ones to set.

Good Intentions, Bad Follow-Through

As well-intentioned as most people are, many who make these goals fail to accomplish them.

One reason is that without tracking progress, it's easy to get discouraged when you don't see immediate results.

Whatever your financial goals for the new year, if you want to be successful in reaching your goals, consider these steps:

Make a Written Plan: The saying "plan your work and work your plan" certainly applies to your finances. Any goal that's not written down is likely to go unaccomplished. Set your goals, keep them realistic and write them down. For each goal, write a summary of what you want to do, why you want to do it and when and how you will get it done. The key to doing this is to Keep It Short and Specific (Martin's version of the "KISS" principle).

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 cash flow and savings.
  • When I will do it: I will have this goal accomplished in eight months.
  • How I will do it: I will stop making charges on my credit card. I will use cash savings immediately ($2,000), use cash from selling some books and CDs on eBay ($750), use my tax refund ($1,200), and pay an additional $135 per month.

    Prioritize Goals and Action Steps: Set out to accomplish first the goals that will provide the most financial benefit and free up resources that can be used to accomplish your other goals. For example, use extra cash savings and income to pay down credit-card debt and, when the credit-card payments are gone, use the income toward building up an emergency fund or saving for a down payment on a house or a car.

    Break Goals into Bite-Sized Pieces: Break your goals down into process steps, and make each step one that can be accomplished quickly. For example, if you want to get your estate plan in order, the first step is to review and update the beneficiary designations on your retirement accounts and life insurance policies. The next step could be to learn about what you want to include in your will. To do that, you can purchase a copy of Quicken's "Willmaker" or "Plan Your Estate" from Review the tutorial that walks you through making a will and provisions you need to consider for your situation. Next, create legal will documents using these computer programs. Finally, select and meet with a competent lawyer before you finalize and sign the documents. The message is to make continuous progress on the steps toward your goals, and to seek professional help when you feel you are getting bogged down.

    So, with that advice, here are seven financial goals worth aiming for this year:

    Pay Down Debt: The key to doing this with the least cost and in the shortest time is to know that not all debt is created equal: Some debt costs you more than other debt. Make a list of your debts and sort them by annual interest rate. Debt with the highest interest rate should be paid off first. It is typically best to use any savings you have to pay down this debt first. Why? Typically, your savings are earning less interest than the debt you owe and, after the debt is paid off, you can use the extra cash flow saved from reduced debt payments toward building up your savings again.

    Also remember that the money to pay off the debt can come from increasing your income, reducing other expenses, selling some stuff or a combination of all three.

    Ask for a Raise: Ready to increase your income in 2007? Don't expect your manager to offer you a raise out of the blue. If you think you've earned a raise, then you'll need to make your case and ask for it. Start by making a list of your accomplishments and how you add value for your employer. Do a search for salary data to know how your salary compares to others in your industry with your level of experience. Also, consider asking for non-cash benefits that can be just as valuable as cash, such as tuition reimbursement, extra vacation time and flexible work hours. Finally, pick your timing to bring up the subject with your boss, such as after a great performance on a project, or when you take on additional responsibilities.

    Start Investing: Most people think you have to be rich to invest — so they never get started. The right way to think about this is that you have to start investing to become rich. The reason for this is that the sooner you start, the more time your money has to grow. The best place to start investing is your employer's 401(k) plan, in which, frequently, your savings are increased by matching contributions made by your employer.

    Also, anyone who can start with as little as $50 per month can invest in a mutual fund offered by T. Rowe Price through automatic deductions from your bank accounts, or by authorizing deductions to be made from your paycheck. Minimum initial investments are waived when you open an account with this service. T. Rowe Price offers a family of more than 80 no-load mutual funds.

    Save for a Child's Future Education Costs: If you want to start saving and investing for a child's future education costs and need to start small but can continue to add ongoing amounts, look no further than a 529 education savings plan. Every state offers at least one 529 savings plan that enables anyone to open an account and begin investing. The growth and future withdrawals are exempt from taxes when used to pay for qualified education costs of the beneficiary. Also, many states offer state tax deductions for contributions by their residents who save in their plans. Log on to to look into your state's 529 plan. Best of all, many 529 plans allow users to start up an account with as little as $25 and make ongoing additions of as little as $15, as long as these are set up as automatic electronic deductions from another account or paycheck.

    Close Unused Financial Accounts: Ask yourself this: Is it really necessary to have several credit card or checking accounts? Although there may have been a reason in the past for each account, if that reason is no longer valid, then the account should be closed. Martin offers two good reasons to close unused accounts: Doing so reduces fees, and it reduces the risk of ID theft. Banks and financial firms charge dormant account fees, such as an annual fee that can sneak money from you. Also, unwatched accounts can be prime targets for ID thieves, who can hijack the account information and use it to perpetrate fraud using your identity. This goal is accomplished by simply listing all of your accounts, deciding which are necessary, and closing the ones that aren't.

    Begin Using a Personal Finance Computer Program: Put that new PC to work and get started using a money management program such as Intuit's Quicken or Microsoft Money. Anyone who can write a check into a checkbook register can use these powerful programs. Not only do they help organize your finances, they help you track where your money is going.

    Pay Bills On Time — And Online: Paying bills on time has never been more important. That's because many creditors have adopted "universal default" clauses, which allow them to hike the rates they charge you when you make a late payment with anyone, even if you have always paid on time with them. One way to help manage your bill payments is to sign up for online banking, which enables you to set up your bills as payees and schedule your payments to be made automatically; that can save time and money, and help to ensure all bills are paid on time.

    Whatever your financial goals, here's wishing you and yours a happy, healthy and prosperous 2007!