Financial resolutions for the New Year
About 45 percent of Americans usually make New Year’s resolutions, according to a University of Scranton survey. But the same survey shows that only 8 percent of us actually keep our resolutions. Perhaps this low success rate isn’t such a tragedy when our resolutions involve things like losing a little weight or learning a foreign language. But when we make financial resolutions — resolutions that, if achieved, could significantly help us in our pursuit of our important long-term goals — it’s clearly worthwhile to make every effort to follow through.
So, what sorts of financial resolutions might you consider? Here are a few possibilities:
Boost your contributions to your retirement plans. Each year, try to put in a little more to your IRA and your 401(k) or other employer-sponsored retirement plans.
Reduce your debts. It’s not always easy to reduce your debts, but make it a goal to finish 2014 with a smaller debt load than you had going into the new year. The lower your monthly debt payments, the more money you’ll have to invest for retirement, college for your children (or grandchildren) and other important objectives.
Build your emergency fund. Work on building an “emergency fund” containing six to 12 months’ worth of living expenses, with the money held in a liquid account that offers a high degree of preservation of principal. Without such a fund, you might be forced to dip into your long-term investments to pay for emergencies, such as a new furnace, a major car repair, and so on. You might not be able to finish creating your emergency fund in one year, but contribute as much as you can afford.
Plan for your protection needs. If you don’t already have the proper amounts of life and disability insurance in place, put it on your “To Do” list for 2014. Also, if you haven’t taken steps to protect yourself from the considerable costs of long-term care, such as an extended nursing home stay, consult with your financial professional, who can suggest the appropriate protection or investment vehicles.
Don’t overreact to market volatility. Too many people head to the investment “sidelines” during market downturns. But if you’re not invested, then you miss any potential market gains— and the biggest gains are often realized at the early stages of the rally.
Focus on the long term. You can probably check your investment balance online, which means you can do it every day, or even several times a day. Do whatever you can to turn these New Year’s resolutions into realities. Your efforts could pay off well beyond 2014.
Doug Drost is a certified financial planner for Edward Jones, 2262 Reno Highway.