Top Three Financial Moves Before 2010

If you want to improve your financial life in 2010, now is the time to set things in motion. Over the next few weeks, take a couple of hours to bump-up your savings rate, hammer down some debt and balance your investment holdings.

While this is all basic advice, it's the stuff that most people don't do. And by the way, it's the stuff that will have the biggest impact on your financial future.

1. Increase Your 401(k) Contribution. The average savings rate in the U.S. is somewhere between 3 and 4 percent, and as recently as 2008 it was about 0 percent. Clearly, we're saving too little. While the family budget may be pretty tight these days, at a minimum, consider increasing your 401(k) contribution by 3 percent for 2010. It's small enough that you probably won't notice the reduction in your pay, but meaningful enough to make a difference in your long-term plans. Get this election filed with your HR department in December, and you'll be up and running for January 1. This should take all of about 15 minutes to contact HR and complete the form.
2. Pay Down More Debt. Most families carry too much debt, whether it comes in the form of credit cards, auto loans, education loans or a mortgage. A good strategy for debt reduction is to pay down the highest interest debt first because it's costing you the most to carry. If you have a mortgage at 6 percent, college loans at 7 percent and a credit card at 15 percent, you generally want to work down the credit card first. For every dollar of credit card debt you pay, you're saving 15 percent in interest as opposed to 6 percent by paying down the mortgage. To automate the process, consider setting up an additional monthly principle payment that comes directly out of your checking account. Accessing the online payment system, setting up passwords and establishing the payment may take you about 45 minutes.
3. Balance Your Investments. One of the best things you can do to help protect and grow your retirement savings is to implement a balanced investment strategy. And by balanced I mean a basic split between diversified stocks, which carry more risk, and high-quality bonds, which carry much less risk. The reason so many people lost so much money in this recent crisis is because they weren't balanced. It's such a basic strategy, but very few people follow it.

• Consider that in 2008, the S&P 500 was down about 37 percent and the Barclay's Aggregate Bond Index, which measures the return of the total bond market, was up about 5 percent. So if you had split your money between these two very basic asset classes, you'd have been down about 16 percent, which was pretty manageable. And by now, your total portfolio would probably be down less than 10%, given the recent recovery we've had in stock prices.
• Remember that the stock market's 50 percent decline is probably not the last 50 percent decline you'll experience in your financial life. So expect it will happen again, and get prepared for it. Otherwise, you'll be left hanging out there without much protection
• If you aren't sure how to balance your money, then get some help. If you have a 401(k) plan, most plans have investment representatives who can help you make these decisions. It might take you an hour or so to organize your account reports, figure out what you own and talk to someone about making changes.

When you put it all together, you're maybe looking at two hours of time to make some very important and positive changes to your finances for 2010.

Bottom line. Get your fundamentals in place for 2010. Only you can make these things happen, and it probably won't take you more than two hours.

As with all financial matters, consult your individual financial advisor prior to making any decisions.

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 for pre-order at amazon.com

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