2009 New Year's Resolutions

If you’re like most people, you’ve set some good New Year’s Resolutions. In lieu of losing weight, being more patient with your kids, or going to church more often, consider setting some important “life” resolutions along with the others. Below are five excellent life resolutions you can make this year. It may even help to clip this article and make it your own checklist.

Pay off all debt, especially unsecured credit card debt. We all know credit cards can create a black hole which is difficult to climb out of. If you’re easily tempted to keep using them, start by cutting the cards in half and throwing them away. Do your best to apply as much excess monthly cash flow as possible. The interest payment alone can quickly swallow someone whole. Once the credit cards are paid, make sure any home equity loans get satisfied. Although these typically carry lower interest rates and are generally tax deductible, it still costs money to maintain. Save your primary mortgage for last.

Consider refinancing your debt. With interest rates plummeting, there are plenty of banks that are willing to consolidate your debt. Just be careful of what type of debt you refinance into a mortgage or home loan. Your home is the collateral for that loan and as a result can be at risk if you are not able to make the payments. Also be very cautious of transaction costs that are often unseen. As with any financial plan, start with your goals then work backward to put together a refinance package that meets those goals. Your goal may be to eliminate high interest loans, reduce taxes, pay a debt off sooner or free up cash flow.

Get your estate plan in order. This means getting your wills, durable powers of attorney, and health care powers written. Even if you think you don’t have a lot of money, you still probably need a will. It’s extremely important for young families because the will dictates the guardianship of your children. And like any estate document, it is difficult to think about these matters but just remember – you can always go back and change it.

Start getting ready for tax season. Make sure your statements are in order. Have a list of your deductions, expenses, and realized capital gain information available. If you are eligible, it may make sense to make a contribution to your IRA or Roth IRA. You have until April 15th to fund those for the tax year ended December 31, 2008 but it is best to not wait until the last minute.

If you have children, make it a point to start a college savings plan for them. Even if it’s just adding $50 a month, any little bit will help. The cost of college education is skyrocketing and the sooner you start the more benefit you can get from compounding. For most parents, 529 Plan accounts make the most sense but you may need to talk to your financial advisor to determine the best vehicle for your situation. There are many options available today so you should know the pros and cons of each before establishing a savings plan.

After completing steps one through five and you are fortunate enough to have the monthly income available, invest as much as possible into your 401(k) or other company sponsored retirement plan. These contributions are immediately tax deductible and the earnings grow tax-deferred. In addition, more money goes to work for you then investing after-tax dollars. Lastly, if you’re one of the few lucky employees who still get a match, well that’s just free money. In today’s depressed market environment, there are plenty of good long-term buying opportunities out there.

If all this seems overwhelming, try to accomplish one item at a time. The items listed are in order of importance so start with number one. Once that is completed move on to number two and so forth. Try to start the tasks that involve monthly investment on an automatic basis. You’ll find that once you have that coming out of your paycheck or checking account automatically each month, you just get used to it. It’s simply taking the first step that is the hardest but you will be glad you did.

Happy New Year!