Mid-Year Review of Your New Year's Resolutions
We're halfway through 2011, which means it's a good time to see if you've lived up to any of the financial resolutions you made at the start of 2011. One of the biggest differentiators between those who build financial security and those who don't is the discipline to do it. There's still half of the year left to make sure you do the things you promised yourself you'd do.
Here's a list of some of the common, and important, financial resolutions that I hear people make. Maybe you made some of them, and it's time to see how you're doing.
Budget. A budget is one of the hardest things for most families to get a handle on. At the start of the year, people say "I'm going to get control of my spending and do a budget." But then life gets in the way, and who really wants to spend all that time entering data and tracking the amount they spent at Applebee's?
You can't make much progress if you don't know where all your money is going. A budget is such a critical building block for personal finance that you just have to start doing it. There are lots of resources for online budgeting. If you do online banking, your bank probably has a feature. Then there are online services link Mint.com Or you can get out a pad of paper and track them by hand. Whatever works for you, but you've got to do a budget.
Debt. Most families carry too much debt, and many people vow to reduce their debt at the start of the year. Well, have you taken steps to pay down your debts and do you carry less debt today than on January 1st? Add up all your debts and see where you are. Many people hate to add up the numbers because it scares them. But until you start tracking the debt and facing it, it's unlikely you'll be motivated to pay it down.
The general rule of thumb with debt is to pay down your highest interest rate debt first. That gets you the biggest savings and reduces your debt the fastest.
- For instance, if you have a credit card balance of $10,000 at 21% interest, that costs you $2,100 a year in interest. Compare that to say $10,000 of your mortgage debt at 5% interest, which is only costing you $500 a year in interest. If you're going to pay off $10,000 of debt, it's better to pay off the credit card because it saves you $2,100 of interest as opposed to the mortgage, which would save you $500.
Savings. Most people wish they were saving more, and at the start of the year promise to add more money to their retirement plans. But, without a budget and with too much debt, they often find there doesn't seem to be any extra money to save. You see, these things are all connected. That's why you've got to have the discipline to develop the budget, pay down the debts and increase the savings, and it usually happens in that order.
An easy way to bump up your savings is to do it automatically each month; the same way you would approach reducing your debts. If you have a 401(k), all you have to do is ask your employer for the forms to increase your monthly contributions. You can start small (like increasing by 1%), but starting is the biggest hurdle. And if you get a match from your employer, make sure you're at least contributing enough to get the full match. That match is part of your overall pay, so don't leave it on the table.
If you don't have a retirement plan, then you can easily set up a savings account at your bank and automatically add to it each month from your checking account. Or, any of the national brokerage firms (Schwab, Fidelity, etc) also have the electronic tools to help you setup a monthly savings and investment plan.
The point of all this is that you've got to be reviewing the progress your making with your finances. Halfway through the year is a good time to assess how you've done. If you're on track, great. If not, you still have plenty of time to improve your finances in 2011.
Don't wait much longer because once we hit September, you'll probably say, "it's too late to do anything meaningful this year, so I'll start this up next year," and then you're back into the same old cycle.
Bottom line. This is a good time to see if you're keeping the promises you made to yourself at the start of the year. If not, then muster the discipline to live up to your own expectations.
Learn More: Want to learn about a simple way to manage your personal finances and prepare for retirement, investigate my new book Your Money Ratios: 8 Simple Tools For Financial Security, available in bookstores and at amazon.com The Wall Street Journal called the book "one of the best finance books to cross our desks this year." WSJ 12/19/09.
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