Financial Resolutions

From Certified Financial Planner Board of Standards, Inc.

Millions of Americans made a decision and promised themselves that this year was the year. But like 80 percent of the population, they broke some or all of their New Year's Resolutions. Although most people may think it's too late to get their fiscal life in order for 2004, it's not! There is still time to make 2004 financial resolutions a reality and start practicing good financial health for 2005! You can get on the path to financial freedom before the New Year, with CFP® Board's 10 steps to financial organization.

1. Get organized
   The first step to successful financial planning is to be organized. Create a filing system or empty a drawer to save bills, invoices and bank statements. Financial planning computer software can help track expenses and important documents. Write down your expenses versus your income and note areas where you can save. You’ll probably be surprised at how much you spend on movie tickets, restaurants and coffee. Once organized, it’ll be easier to create a budget.
   
2. Set goals
   Think about what you’d like to accomplish in the next three to 10 years and prioritize those goals. Maybe you’d like to pay off a credit card, buy a new home or take long vacation. Once you know where you are and where you want to be you can use this information to set realistic financial goals. Write down short-term and long-term goals that are specific and actionable, then create a budget and stick to it! Remember, financial planning is really just using a roadmap to obtain your dreams.
   
3. Reduce debt
   Not all debt is created equal, so pay off those credit cards! Prioritize debt by interest rates and pay off debt with the highest rates (most likely credit cards) first. Get rid of department store cards and only use a debit card for purchases. Consider debt consolidation. Consolidating all of your debt into one low-rate card or a consolidation loan could reduce monthly payments and make tracking easier.
   
4. Estate planning
   While it’s easy to push estate planning out the window and focus on everyday tasks, creating or updating a will is essential. Contrary to common belief, creating a will doesn’t have to be complicated or expensive. If you’re under 50 and don’t expect to leave assets valuable enough to be subject to estate taxes, a basic will might suffice. You can write it yourself with a good self-help book or computer software. This way you, and not the state, decide who gets your property, who will raise your children and who will be the executor of your will.
   
5. Emergency fund
   Grow your emergency fund. The rule of thumb is to have at least six months income saved in an accessible account.
   
6. Insurance
   Review all your insurance policies and shop around for the best deal; you may need more or less insurance coverage. Using the same company to insure your home and car could save you money. Remodeling, landscaping or recent furniture purchases are all reasons to increase your home owners or renters insurance. It’s a common mistake to underinsure what’s yours, so make sure your coverage is complete. You can also consider increasing home or car insurance deductibles to $500 or $1,000.
   Further, a birth in the family is a good reason to get or beef up life insurance. Consider having enough life insurance to replace 80 percent of your annual income.
   
7. Retirement
   Whether retirement is 10 or 30 years away, it’s never too early to begin planning for retirement. Always give the maximum amount possible to your retirement plan, be it a 401(k) plan at work or an Individual Retirement Account (IRA). Consider enrolling in an automatic savings plan. These plans automatically deduct a percent of your take-home check so you pay yourself first, before you even receive your check. Consider interest- bearing money market accounts or a tax-deferred IRA. Many financial planners recommend saving five to 10 percent of every paycheck.
   
8. Taxes
   Exemptions and deductions are the two easiest ways to reduce your federal income tax bill. Exemption basically reduces the amount of income taxed; being married or having dependants are the most common exemptions. Deductions are personal expenses you can subtract from your income. Charitable donations, student loans and interest from property taxes are examples of tax deductions. Also at your next birthday party or gift-exchanging event, consider donating money to a family member’s favorite charity in lieu of a gift; this great present is tax-deductible as well!
   
9. Investments
   Of the three main investment choices - stocks, bonds, mutual funds - a simple rule remains, don’t put all of your eggs in one basket! By balancing your portfolio, you can avoid the risks associated with any one type of investment. For example, if the stock market goes down, you have bonds to rely on to generate a positive return and vice versa.
   
10. See a CFP® Professional
    Planning your financial future can be overwhelming, but whether you have millions or are paying bills month to month, a Certified Financial Planner™ professional can help you create a budget and accomplish your financial dreams. Unlike other financial advisers who may focus on a single area such as insurance or investments, a CFP® practitioner looks at the entire financial picture. The CFP® mark also lets you know that your finances are in trustworthy hands. CFP® practitioners are held to high ethical and practice standards.

If you would like information on CFP Board of Standards, this article or how to find a Certified Financial Planner (TM) in your area, please visit www.cfp.net or call 1-888-CFP-MARK.

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