Prioritize Your Payments
You’ve probably heard the oft-repeated advice to “pay yourself first” when divvying up your earnings. But what does that really mean? It could mean that you should direct some of your pay into a savings account, making it less available for impulse spending. But what if you carry credit card balances with 15 percent interest rates? Is it really smart to allocate money to a savings account paying .5 percent interest? You’re probably better off using that savings to get rid of your credit card balances, then set up a savings plan you can live with.
On the other hand, if your employer offers matching contributions to retirement accounts, take advantage of that as much as possible. It might take longer to pay off your credit cards, but a one-to-one match is a 100 percent return on your money, and 100 percent is a lot more than 15 percent. The main point here is that you consider every use of your hard-earned money and make knowledgeable decisions (get professional advice if necessary).
Alter Your Obsessions
Some people have a hard time controlling their spending. How many times do you see articles about people who shop compulsively and then don’t even use what they buy? Well, guess what – you can make this behavior work for you. Instead of obsessing about the hottest cars or electronics, get on Morningstar.com or a similar site and check out equities and mutual funds. Instead of buying a Coach bag, purchase stock in the company (symbol: COH). You may find that building financial security is more satisfying than amassing toys that quickly become obsolete.
Seventy-five percent of Americans get tax refunds each year, and according to the IRS, those refunds are getting larger. If you’re one of those Americans, consider altering your strategy. While it might be nice to get a large check once a year, why would you provide the US government with an interest-free loan of your money? Try investing it, paying down high-interest debt, or creating an emergency savings account.
All you need to do to gain access to that money is adjust your W-4 form. Need help? Many tax accountants and preparers like H&R Block will do a W-4 without charge for their tax preparation customers, and Turbotax software comes with a W-4 feature. The IRS has a withholding calculator at www.irs.gov. It’s best to have your pay check and last year’s tax return when you work out your numbers.
Cultivate Your Credit
If your credit rating took a hit during the soft economy, this is the year to restore it. Why? Because during your lifetime, having a 650 FICO instead of a 750 score could cost you over $200,000! Imagine how much happier your retirement could be with an extra two hundred grand in the bank – that’s a pretty compelling reason to work on your credit score now. Here’s how:
- Monitor your credit report at www.annualcreditreport.com. You can pull a report from each bureau once a year. Spread them out, and that’s a free report every four months. Check it for errors verify your progress as you clean up your act.
- Is your problem a lack of credit rather than bad credit? Try getting relatives with good credit to add you as an authorized user to their accounts. You won’t actually use the accounts, but your family member’s good payment history will transfer to your own report and score. In addition, use a secured card or one with a co-signer to build a credit history. Make sure that the fees are reasonable and that the company will report your history to the credit bureaus.
- Make it a group effort -- myFICO.com the runs an online contest called the myFICO Fitness Challenge, where participants try to increase their scores. Last year, more than 24,000 members participated.
- Get professional help. If you can’t fix your credit on your own, enlist the help of a reputable non-profit credit counseling service. They’ll help you budget, pay your bills on time and develop better habits.
Manage Your Mortgage
The previous resolutions all involve either saving money or paying off debt. This process can be accelerated if you adjust your mortgage to free up some extra cash, and redirect it where it will do the most good.
Check out a refinance calculator to see if you can increase your monthly cash flow or pay less interest. Then get a few mortgage quotes from competing lenders and start saving in 2013. Of all the resolutions listed here, refinancing your mortgage could be the easiest one to carry out.