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Financial resolutions
NEW YORK (CNN/Money) - If you're like many Americans, getting
into shape is at the top of your New Year's resolution list.
For others, the New
Year is a chance start over and do things differently financially.
While we can't help
you tone your abs, we can help you get financially fit. Here are
five tips to help you get your finances in order.
1. Get rid of
holiday debt.
U.S. consumers will
spend $219 billion on gifts this holiday season, according to the
National Retail Federation. 30 percent of these purchases will be
made on credit cards.
Debt hangovers from
the holidays can be extremely painful. Not paying off your holiday
debt can mean high interest payments; plus your credit is tied up
while you pay down your debt.
If you're in this
boat, you'll want to do some planning. First, if your holiday debt
is largely on credit cards, add up the debt on each and figure out
just how much you can afford to set aside monthly to pay the cards
down. Don't be overly aggressive in your estimate -- you need a
workable plan.
To be sure you'll
pay off something on each card each month, but put the most down on
the card with the highest interest rate.
Keep in mind, too,
that this is a good time to contact your credit card issuer and ask
for a lower interest rate. They will often oblige, particularly if
you have a card offer with a lower rate on hand to mention.
Pay more than the
minimum payments. Try not to take on additional credit card debt
while you work off your existing holiday bills.
2. Move your
finances online.
If the online
banking thing is new to you, you want to slowly venture in taking
baby steps. Start by paying just one bill online. As you begin to
feel more comfortable, graduate to another bill and so on and so on.
There are several
benefits to banking online -- first, banking on the Web may help you
deter identity thieves. Paying your bills online could cut down the
threat of suspicious activity since people have a tendency to look
at their accounts more often when they bank online. For that reason,
they're able to spot suspicious activity more quickly.
Among other
benefits of going online is cutting down on postage and unlike a
bank, online banking sites are never closed. Also, sometimes your
bank or credit card company will inform you online when your next
statement is available and when it has been posted to your account.
3. Boost
retirement savings to the max.
One smart step to
take now to ensure your future is to boost your retirement savings.
The good news is
that the limits on how much you can set aside go up next year. In
2005, you can put up to $14,000 into a 401(k) (that's up from
$13,000 in 2004). You can contribute even more if you are 50 or
older, up to an additional $4,000.
Also, if you
haven't already made your maximum contribution to your Roth IRA, do
it now. For 2005, the max is $4,000 per person or $4,500 if you'll
be 50 or older by the end of the year.
4. Interest
rates are still low...for now.
As we head into the
New Year interest rates are expected to keep creeping up. For that
reason, you'll want to pay off any high interest rate debt (as we
said before).
Because rates are
moving higher, you may want to snag a low fixed interest rate credit
card. Check out
www.cardweb.com or
www.bankrate.com
for info.
The good news is
that savers tend to benefit from rising rates. According to
certified financial planner Doug Flynn, if you're planning on buying
a certificate of deposit (CD) this year, you may want to look into
CDs with shorter-term maturities. You'll want to kick yourself if
you're locked into a longer-term CD and yields become more
attractive later on.
5. Buy yourself
peace of mind.
Many people think
"it won't happen to me." However, you never know when an emergency
can strike. For that reason, consider setting up an emergency fund
for you and your family to cover a financial emergency. Financial
emergencies can include life-changing illnesses or a loss of job.
So, how much should
you sock away? Three to six months of your living expenses. The
amount you save depends on your personal financial circumstances and
obligations. For example, a household making $50,000 a year, should
sock away at least $12,500 (3 months salary) in an emergency fund.
Treat the emergency
fund as a monthly bill you must pay. You will be able to discipline
yourself to put the money away consistently.
You'll also want to
make sure to put the money in a fairly liquid vehicle, such as a
savings account, which will allow you to withdraw the money when you
need it.
Also, an emergency
fund is a smart alternative to using a credit card to help cover a
major expense. Using a credit card will just add interest to debt
you already can't pay.
Source:
CNN Money
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