Here we are, a month into 2007, and already you're worrying that the resolutions you set for yourself are starting to slip through your fingers.
You wanted to go to the gym more to work off those holiday pounds, but the job got busy and the kids had more after-school activities, so your goal of working out three times a week has fallen by the wayside. Same with eating healthy meals. You started off strong, but by week two that salad was starting to taste a little bland and the tuna was sticking in your throat like peanut butter.
Average Joe, meet reality.
What about those financial goals you set? Paying down your debt? Setting up an emergency fund? Well, Timmy needed new braces, so not only did the e-fund not get its contribution this week, but the credit card bill got rung up a little higher, too. Oh, and that overtime you were working? It got cut, and they've reduced hours to compensate. Now you're bringing home less.
We've all run into times like these, where despite the best of intentions, life gets in the way. And too often we don't even have the best of intentions -- we're simply blissfully ignorant that we need to get these things done. But you're a Fool, so you know better.
To recap, though, here's what we all know we should be doing:
- Pay down your debt. That must be our top priority. Paying off your credit card with a 21% interest rate is like getting an immediate return on your money without any risk of loss. Few stocks can offer such promise.
- Establish a rainy day fund. Sure, you're feeling in the pink of health, but stuff happens. The rule of thumb is three to six months of living expenses set aside for emergencies. (A sale at Macy's doesn't constitute an emergency.) The e-fund is for true emergencies like if you lose your job or a hurricane sweeps away your house. You'll need access to money just to live.
- Save for retirement. You've paid off your debt, you've got money to live on should the worst happen -- now start putting away money for when you no longer want to work. If your company matches your contributions to a 401(k), put away at least as much as the match, because that's free money. Try to save at least 15% of your pay -- 10% if you're really stuck -- because your retirement must be the priority now ahead of anything else, including your children's education.
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- Save for college. Only after you've taken care of yourself should you look after the kids. Sounds selfish, but it's true. Janie can always take out a loan, get a job, or go to a cheaper school. You won't always be able to work. But if you do have some college savings available, check out state-sponsored 529 college-savings plans. The money in them grows tax-free, and earnings can be withdrawn free of federal taxes so long as they're used to pay for higher education expenses.
- Buy insurance. Everyone's familiar with homeowners insurance, car insurance, and life insurance. Most people don't think about disability insurance or long-term care insurance. First check that your home and your life are insured for appropriate amounts -- the value of your house, for instance, may have risen far in excess of your coverage -- then check that your ability to earn an income is insured. Disability insurance protects you if you become unable to earn a living, while long-term care insurance protects you from poverty should you have to be hospitalized. They're not necessarily cheap, but they're necessary nonetheless.
So we've got the basics down; we know what we're supposed to do, though finding the time to do it all becomes tough. Automating the process helps, because then you don't even have to think about it. Having your 401(k) contribution automatically deducted from your pay means you won't even miss the money because it never touches your hands. Consider having any raise automatically swept into your money market account so that it never enters your paycheck and you can't come up with excuses to spend it.
Resolutions without, er, resolution tend not to get accomplished. Having a checklist of things to do helps, and a calendar of when you should do them lets you stay on track.
There's no sense in wracking your brain with guilt if you forget to make that money market account deposit -- now you can follow your financial plan with the Get It Done Calendar at the Motley Fool Green Light service. A subscription gives you access to the newsletter and discussion boards with straightforward financial advice and tips, a place to identify goals and download worksheets, and a new calendar with month-by-month steps to take to improve your financial picture.
If one of your New Year's resolutions was to take control of your financial future, then click here to try out Motley Fool Green Light risk-free for 30 days. Advisors Dayana Yochim and Shannon Zimmerman make personal finance rewarding, fun, and easy to achieve. Make a resolution to check it out today.
Fool contributor Rich Duprey found that his employer offered affordable, portable disability and long-term care insurance. Check with yours. Bank of America is an Income Investor recommendation. The Motley Fool is investors writing for investors.