Summary:
New Year´s resolutions come and go each year. When it comes to resolving to get your finances in shape, the following five resolutions shouldn´t be ignored.

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Five Resolutions You Can’t Afford to Neglect
By Celeste Stewart

Year in, year out, resolutions come and go. Fitness centers see an immediate upsurge in activity in January as the masses decide that now’s the time to finally get into shape. But it’s business as usual as soon as the resolve wears thin. As the credit card bills begin arriving in late January, New Year’s vows to improve finances give way to a feeling of hopelessness. How can you possibly expect to get ahead when you’re drowning in debt?

This year, be proactive and forget the “all or nothing” New Year’s resolution. Instead of jumping into a rigid five days per week fitness regime, take steps toward improving your health by choosing realistic, attainable goals. You know that you went overboard with your holiday spending and you know that the next credit card bill will be a whopper. Brace yourself. Instead of allowing that bill to weaken your resolve to improve your finances, use it to motivate yourself.

Resolving to improve your finances is smart but it involves action. Simply writing “improve finances” on a list of New Year’s resolutions won’t do. Just as you must exercise and eat less in order to lose weight, you must also get moving in order to get your finances in shape.

While there are dozens of steps you can take to improve your finances, the following five resolutions are ones that you can’t afford to neglect. The first two resolutions are steps you can take right now while your resolve is at its peak. Spend a few hours on these and you’ll only have three steps remaining to consider throughout the year.

1. Write your will – Consumer Reports estimates that nearly 66% of people do not have a will. Even if you don’t have much of an estate, writing a will is important, especially if you have children. Who do you trust to appoint a guardian for your children? You or the state? A will is a tool that you can use to appoint your own guardian for your children as well as designate the distribution of your assets. If you die without a will, the state will determine who gets what and who will take care of your children.

Writing a will is simple and not as depressing as you might think. In fact, it is empowering because you are taking charge of a situation according to your wishes. Numerous software programs are available to assist you in making out a simple will that is completely legal in your state.

2. Review your insurance – If your house were to burn down tomorrow, would you have enough insurance to fully rebuild it, replace all of its contents, and provide for temporary living expenses in the interim? Are you sure? If you were to get into an automobile accident with a high-end luxury car and it was your fault, would you have enough insurance to cover the cost of repairs? If the other driver sued you for hundreds of thousands of dollars because he was left a paraplegic, would your insurance cover it? Do you have enough life insurance to provide for your family if you were to die unexpectedly?

Take a look at all of your insurance policies and make sure you have adequate coverage in all areas. As you progress through life, your insurance needs change which is why it’s important to review your coverage periodically. You may find you can reduce coverage in some areas or may need to increase it in others depending on how your situation has changed since the last time you reviewed your policies.

While you’re at it, make sure to double check the beneficiary of each policy. Is this person still alive? Is this the person you want to receive the funds should you die? Many people forget to re-designate beneficiaries after a divorce.

3. Start saving now – Do you have a retirement plan or IRA? If so, are you contributing the maximum amount? If not, increase your contribution. You’ll feel a pinch at first but soon, you’ll grow used to it, especially if you can have your contribution taken directly out of your paycheck.

If you don’t have either one, open a Roth IRA and set up automatic contributions up to the annual limit. The sooner you get started saving, the more you can take advantage of compound interest.

Do you have an emergency fund? What would you do if you lost your job suddenly? How would you pay the bills? What if you need a new furnace in the middle of winter? How will you pay for it? An emergency fund gives you peace of mind and funds that you can use should an emergency affect your pocketbook. Plus, instead of paying interest by using a credit card, your emergency fund can earn you interest if you place it in a high interest savings account.

4. Reduce your credit card debt – Take a look at the whopper of a credit card bill, in particular the line that details the finance charges. How much money are you paying for the convenience of instant gratification? As long as you have an unpaid balance, you’ll be paying finance charges every single month. Now look at the minimum payment due. It may be surprisingly low in contrast to the amount you owe. If you’re in the habit of paying the minimum due, you’ll never get ahead.

It’s time to break the hold the credit card company has on you and start paying down your credit card balance. In fact, if you’re paying double digit interest rates, it’s in your best interest to put as much money as you can toward paying off your credit cards.

In addition to paying down the balance, a crucial step in reducing your credit card debt is to stop using the card in the first place. This means delaying gratification. But those black leather boots are so cute! Not so fast. They’re cute but ask yourself if you’re willing to go into debt for them. If they are simply a must-have item, try an old-fashioned approach: save up for them.

5. Improve your credit score – Those with poor credit pay more for loans but did you know that your credit score is used to determine other rates? The insurance industry uses credit scores when determining how much to charge you for insurance. If you’re struggling financially and have a low credit score, you’ll feel the pinch even more in higher insurance rates. In addition, employers also look at credit scores when evaluating job candidates. Credit scores serve as a gauge of your responsibility. If you can’t handle your finances, how are you going to handle other duties? Now, not only are you suffering financially and paying high insurance rates, you’re going to have a tough time landing a higher paying job!

Do yourself and your future financial situation a favor by working to improve your credit score. Pay your bills on time religiously. Don’t apply for store credit simply to get that 10% one-time discount. Pay down your credit card balances.

If you’re headed to the gym this January with a fresh resolve to get into shape, you fully expect to hear the fitness trainer say “no pain, no gain.” The same is true as you work to fix your finances. It will be painful. You will need to make sacrifices in how you spend your money. But just as you’re willing to sweat for a few hours each week, if you put your mind to it, you can take charge of your finances.

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