Guest Author - Reshma Vyas
Now with the holidays firmly behind us, it’s time to focus on the upcoming year and start compiling our list of resolutions for 2009! Some of these are no doubt familiar; stop smoking, pursue a more healthy lifestyle, exercise more often, lose 20 pounds before the start of the spring season, organize my closets, do more volunteer work, eliminate credit card debt, sock away more money for retirement, cultivate new skills and get a better job. However, stress from our daily routines and responsibilities, discouragement and lethargy soon set in and quickly sap us of our enthusiasm and energy. By the middle of February, most of us will have abandoned our resolutions and many more may not even be able to remember their resolutions! Why are New Year’s Resolutions so hard to keep? It’s not the resolutions that are the problem but the fact that we make too many conflicting, sweeping resolutions, all of which simultaneously compete for our time, energy and resources.
How can we achieve our financial resolutions for 2009? Make your list of financial resolutions specific. Vague resolutions tend to discourage and distract us from reaching our goals. Success in turning our resolutions into reality requires backing up our goals with solid planning and patience. Ideally, you should list only two or three financial resolutions so that you can stay focused and motivated. One of these resolutions should be relatively simple such as “I resolve to learn more about exchange-traded funds” or “I resolve to set up an automatic savings plan for my Roth IRA”. Limit yourself to only one new long-term financial resolution. Long-term in this context is defined as 4 years or more. Every resolution you write should have a purpose. When compiling your resolutions, ask yourself two questions. Why am I making this resolution at this particular time? How can I achieve this resolution?
For example, one might have the following three financial resolutions:
1. I resolve to learn more about mutual funds.
2. I resolve to enroll in a certificate program to learn new skills in order to increase my earning power.
3. I resolve to save money for a down payment for a house.
Resolution #1: Learning more about mutual funds is important because you may want to invest in a variety of funds to fulfill short-term and long-term investment goals. Therefore, reading books about mutual funds and mutual fund companies and taking classes on mutual fund investing at a local community college would be extremely helpful.
Resolution #2: Enrolling in a certificate program may help you enhance your education and qualifications so that you can obtain a higher-paying job and hopefully enjoy more discretionary income and save even more money.
Resolution #3: Saving money for a down payment on a house will require long-term planning both in terms of saving and investing. If you plan to make a down payment of at least 20% or more, you may have to save for several years and this will involve a change in lifestyle and spending habits. Home prices overall are still high in comparison to average income. You will also have to give due consideration as to how you invest the money. Money saved for the down payment needs to be invested in safe liquid funds such as a money market fund, a bank savings account and/or Treasuries. You may also want to ladder certificates of deposit. If so, you will need to pay special attention to interest rates and compare interest rates on certificates of deposit offered by different banks in your area.
Your Wish-List: After you finish writing your financial resolutions, put your list aside. On a separate piece of paper or even in a journal, write about what you ultimately expect from your personal finances. This can be termed your wish-list. Don’t be embarrassed about writing down your hopes and aspirations. Ask yourself truthfully, what kind of lifestyle do I hope to attain? What can my money do for me? Do you want a new wardrobe every year and be forever in debt? Or, do you want to retire early and buy a small farm? Money can only help us achieve our dreams if we are clear and honest about what we want. Then, and only then, can we formulate a realistic plan of action that can enable us to attain our financial objectives. Never stop believing in the power of your dreams. Interestingly enough, it is the dreamers and free-thinkers who are the most successful inventors. Nearly, all of the technological inventions that we take for granted today such as the automobile and the telephone were created by American inventors who had dreams and the courage to act on them. Always remember, “if you dream it, you can achieve it!”