Here are five simple New Year’s financial resolutions I believe will have the greatest positive impact:
1. Find out where you stand right now. The joke goes like this: A patient asks the doctor: “Hey doc, can you tell me how I stand?” To which the doctor replies: “Ya know? That’s what puzzles me!” You can’t begin to implement a plan without identifying a starting point, a benchmark against which you will compare future results in order to track your progress. A financial starting point means creating a personal financial statement. This is a simple summary of what you own compared to what you owe. Simply walk into your branch bank and ask for a personal financial statement form or find one online. Then simply list your assets and subtract your liabilities to determine your net worth. The result may not be pretty, but it will certainly provide a compelling picture of where you stand right now.
2. Next, set some financial goals for yourself for the year. To be an effective goal, each should have three key attributes: each one should be measurable, achievable and include a time frame. For example, an achievable goal might be: “I want to have $2,000 in my investment account by the end of November.”
3. Attack any “unconscious spending”. I use this term to identify any ongoing fees that may have become either invisible (monthly bank account maintenance fees), supposedly inevitable (ATM fees) or simply errors you could have avoided (late payment penalties and overdraft fees). A good exercise is to sit down with your year-end bank statement and look at the 2011 totals for these items. Hopefully, you will freak out!
4. If you have not already done so, set up an automatic monthly transfer from your checking account into your investment account. Frankly, I am not as concerned about the amount, but needless to say the more you are able to afford, the faster the time value of money can become your very powerful ally.
5. Finally, think of at least one thing you can do to generate additional monthly income or simply cash. This could be as big a commitment as a part-time job or one-time paid project or as simple as selling something you don’t need on eBay. And don’t tell me you don’t have anything to get rid of! We all do!
Are there other things you could and should do? Of course! But if I give you a longer list, it will seem too complicated and you’ll lose interest. So make a commitment – follow these five simple steps and watch how quickly your financial picture improves. As you track your progress along the way, the positive reinforcement will help you keep the ball rolling.
Happy New Year!