It’s time to make out those 2015 resolutions.
The holidays are great for reflection and many of us create resolutions for losing weight or quitting smoking. Those are great resolutions, but how about creating some finance resolutions that have a specific goal: putting you in a better financial situation at the end of 2014 than now.
So how do you do that?
1.) SAVE MORE MONEY. How about joining lots of others in the 2014 SAVINGS CHALLENGE. This is so easy. Here’s how it works: every week for 52 weeks, you put a little money aside in a savings or money market account. The first week, put $1 into your savings; the second week save $2; week three—save $3 and so on. By the end of 52 weeks, you will have saved a grand total of $1,378! It’s a great and simple way to save. Just pick the institution you want to use and get started. Once you do this, keep it going. Financial experts say you need to save at least 6 months of income as a hedge against difficult times.
2.) CONSOLIDATE YOUR FINANCES. Check out your accounts. Do you have multiple IRA accounts, multiple 401(k) accounts, multiple Certificate of Deposit or bank savings accounts? Why? Yes, I know you shop around for the best rates, but this can lead to so many different accounts you end up not knowing how much money you have saved. Instead, pick an institution you like and consolidate all of your accounts with one institution or money manager. Your goal is to be able to see at a glance where your money and savings are. That way, you can use your knowledge to help you choose where to put your money.
3.) MAKE YOUR ACCOUNTS “PAYABLE ON DEATH.” Why? Accounts that are designated “payable on death” do not have to go through probate to get to the beneficiaries. It’s a simple way to avoid probate for some of your assets. Just talk to your bank manager or broker, tell him or her you want the accounts made “POD” and they will give you a form. You designate the beneficiaries who will take the money when you die and that’s it.
4.) GET YOUR WILL OR TRUST PREPARED IN 2014. Just this morning I spoke to a client whose daughter’s mother-in-law had suffered a catastrophic stroke and was expected to die – without a will or a trust. According to the client, the family members were already arguing about who would get the estate. Don’t leave your loved ones in chaos. Make out your estate documents in 2014 and take the burden off your loved ones.
5.) PAY OFF YOUR HIGH INTEREST CREDIT CARDS. Or if you can’t pay them off, at least pay them down. You will be surprised how great you will feel when you make a plan to pay off those high interest credit cards. Make this your priority for 2014. To make a plan to pay debts, you have to figure out how much you take in, how much you spend and what you have left over. If you don’t have anything left over to pay credit card debt, think again. Can you take the bus instead of your car and free up some money to pay on the credit cards? Get creative and once you have a plan, stick to it.
6.) MAKE MORE MONEY. This is easy to say but hard to do without a specific plan of action. If you have been working in a dead-end job and want to make more money, you may have to change jobs to do that. Or, you may have to show your boss that you are so valuable, you deserve a raise. If you are going to look for a new job, networking is absolutely the only way to go. Remember—it isn’t who you know, it’s who they know. So, network with everyone you know and everyone they know to find an opportunity that is better for you. That means updating your “elevator” speech about yourself, updating your resume, signing up for a class or two to get yourself more marketable and, again, sticking to a plan of action. If you have your own business, making more money means growing your revenues and cutting your costs, not one or the other. The old saying is “volume is vanity; profits are prosperity.” What specific actions will you take with your business in 2014 to increase your profits?
7.) PUT SOME OF YOUR INVESTMENTS INTO STOCKS. I have been reviewing the end of the year analyses produced by various brokerage firms and all seem to have the same outlook and advice for 2014. On the outlook, it appears U.S. economic growth will continue at about a 2.5% annual rate for 2014. That compares to 2% growth over the past four years. Consumer spending is also expected to increase by about 2%, with confidence in the economy rising. Globally, the International Monetary Fund predicts economic growth will accelerate in 2014 to 3.6%. On the U.S. corporate side, the predictions are that earnings will grow stronger in 2014.
In 2013, a lot of money on the sidelines or parked in bonds has flowed into stocks. Investors have added for than $20 billion into equity funds in the first 10 months of 2013 according to the Investment Company Institute. Predictions are that stocks will continue to be attractive to investors in 2014. Remember, however, that while the stock market is forging ahead, the experts warn that a pull-back of as much as 10% can be expected to occur simply due to ordinary market volatility. To counter this, focus on the quality of your investments and prepare to buy when prices drop on a downturn.
8.) DECREASE THE AMOUNT OF LONG-TERM BONDS IN YOUR PORTFOLIO. Given the predicted growth in the economy, it is likely that long-term interest rates will rise. That means that the value of your long-term bonds will decrease. So, the experts advise you to put your bond holdings into short-term and intermediate–term bonds, not long-term bonds.
9.) ALLOCATE YOUR INVESTMENTS. If you have not already done so, make sure your investment portfolio is allocated across a broad spectrum of investments. Your success as an investor is directly related to whether you have allocated your investments across a broad enough spectrum to reduce your risk and maximize your returns. If you have not followed this path, do so. Putting all your investment eggs in one basket simply is not a winning strategy, nor is counting on your ability to pick the next hot stock. Go with the Nobel prize winners and pick allocation as your approach. Once you have done that, find yourself an investment advisor who can help you implement your plan.
10.) DIETING DOESN’T WORK; CHANGING YOUR EATING HABITS DOES. The same principle applies to managing your personal finances. First, take a look at where you are by creating a personal income statement and balance sheet. Next, focus on what you can do to change your financial situation. Make a plan of action and stick to it. Reward yourself for meeting your financial goals. You do not have to do this alone. There are many qualified money managers out there to help you. Educate yourself by using all the tools available on the internet before you sit down with a money manager. Interview that manager. Walk away from anyone who is condescending to you or who promises you great returns on your investments. Find someone who can relate to you and who offers the best they can do to help you improve your personal financial condition. And, stick to the plan.
Wishing all of you the best of luck in 2014!
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them” (2013 ebook download available at LegalStriegel.com.). Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.