2008 Financial Resolutions

2008 is upon us, and with the dawn of a New Year comes the flood of the stereotypical New Year’s resolutions. Of course, setting goals for the next 12 months does not have to be limited to weight loss or personal fitness goals -- there are many money matters you can resolve to tend to in the New Year as well. Here are some practical 2008 financial resolutions to fuel your money-matters' well-being in the New Year and beyond.

I will fully fund my IRA

Since the message is so prevalent, it is nearly common knowledge that if you start fully funding your IRA in your 20s, and earn a modest annual rate of return, you will be a millionaire by the time you retire. However, the general mindset among young professionals is that you can catch up later. While some may be fortunate enough to be able to make that happen, it is more prudent to prepare for the worst. If you do not fund your IRA, it doesn't mean that you are going to be destitute come retirement, but having a retirement stash certainly can make things easier. You should max out your contributions -- $4,000 in 2007 (you have until April 15 to fund your IRA for 2007) and $5,000 in 2008.

Additionally, rather than waiting until the last minute, opt to have a portion of your pay check automatically routed to your IRA account each time around. This approach will save you the stress of having to come up with a big chunk of change at the end of the year and reduce the temptation to short your contributions. Furthermore, keep in mind that this money is not spent and gone until you are 65. If you are eligible for a Roth IRA (and most of us are), you can withdraw your contributions (not your gains) without penalty for any purpose. For traditional IRAs, special exemptions are available if you are withdrawing funds for a first home purchase or educational expenses.   

I will pay off my credit cards

Everyone talks about paying off their debt, and 2008 is the year to do it. Oh wait, you said that last year, and yet again, you only managed to make the minimum payment each month and watched that 20% interest rate eat you alive. Eliminating your debt can seem like an overwhelming task, especially if you've been shackled with it for sometime. However, like all tasks, it starts with an action plan and small steps. First, you should actually outline a very specific strategy for accomplishing this goal. It needs to consist of more than “I am going to spend less.” Explore your options, such as setting up a realistic budget outlining your required living expenses and social expenses. After all, punishing yourself by becoming a hermit is no fun.

Consider inviting credit counseling services, such as Incharge. These services are free and work with your creditors to lower your interest rates to reasonable levels, help you make payments on time and, for the most part, do not damage your credit score.  Avoid consolidation loans that can have negative impacts on your credit score and actually encourage you to reload your cleared-up plastic. Paying off your debt may end up taking more than a year or two. But by having a clear action plan and asking yourself each day what you can do to reduce your dependence on http://www.askmen.com/money/investing_150/173_investing.html accounts. We often hesitate to sign up for these because they reduce our take-home pay, which we immediately equate with having less money. The reality is, when you allot some of your paycheck to these areas, you are not losing money -- you are simply transferring it within your financial arena. Flexible spending accounts are a great way to save on taxes and maximize your tax refund at the end of the year. Most importantly, if you use them right for medical and dependent care expenses, you end up getting all of the money back anyway. You can choose to be immediately reimbursed or if you can stomach it, let your balance store up and then get one big reimbursement at one time, which always seems to help more than lots of little installments.

As for the 401(k), you are able to put tax-free money away for retirement and if things really get tough, you can usually borrow against it.  Most importantly, many employers will match a portion of your contribution, which is essentially free money -- you have to take that. If your employer is a public company, they will often allow you to buy shares of company stock in your 401(k) and usually at a discount compared to the market price. The latter may need some research, but if it is a good investment, you will have the opportunity to buy something for less than it is worth with someone else’s money that you don't have to pay back.  

I will start saving & investing for me

Every financial adviser beats the drum about saving for retirement. While you absolutely should, what is the fun of socking away money that you can't touch for 30 or 40 years? You ask yourself:  “Shouldn’t I have something for me now?” The answer is, yes. After all, you only go around once and some enjoyable things cost money. Obviously, each of us should live within our means and buy only what we can realistically afford -- and that is different for each person based on their income and other factors. It's OK to have financial goals that you would like to reach before retirement, such as saving up for a down payment and buying a house or going on a European cruise.

Before saving for retirement, make it a point to pay yourself first. You can choose to spend it on whatever you want, even going out that very night. For those of you with longer-term horizons, start taking that money and saving toward the down payment. You will feel good knowing that you are building for your financial freedom now and not just in your golden years. Additionally, should an emergency event happen that requires some immediate cash, having access to it without having to dip into the credit cards or retirement fund can bring peace of mind and the feeling of having control of your finances.

bright financial futures

Most New Year’s resolutions fail because they are either not realistic or not clearly sketched out. Take control of your finances in 2008 and put the above suggestions into practice and develope a very specific financial plan of attack. If you are aiming to pay off your credit cards, take the necessary budgeting and credit counseling steps. If you want to start saving for a house, run the numbers to determine what mortgage payment you can afford and how much you will need to have ready for a down payment. Your resolutions can become reality if you take control of your finances -- rather than letting them control you. Here's to wishing you a financially successful 2008!

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Financial Correspondent - Every Tuesday