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Bob Stammers

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7 Financial Resolutions It's Not too Late to Make

Posted: 01/15/2013 12:28 pm

With New Year's in our rear-view mirror, hopefully many are diligently working to keep their resolutions. Whether you've been hopping on the treadmill before work or neglecting the office vending machine, kudos to you for attempting to start the year off right.

However, research tells us that, for many people, the New Year isn't a time to break the same old bad habits. According to the University of Scranton, 55 percent of Americans don't usually make New Year's resolutions, with 38 percent absolutely never making resolutions.

This is particularly troublesome to me, because this year, more than ever, investors will need to set some financial goals. With the recent fiscal cliff deal, almost all Americans are going to face higher taxes. Yes, it could have been a lot worse, particularly for the middle class, but the payroll tax expiration will cost working Americans some valuable dollars, and we know the fight over spending and taxes is far from over in Washington.

So do yourself a favor and spend some time going over your finances for 2013. By doing what I like to call a holistic review, where you examine your complete financial situation (salary, taxes, debt, spending and saving habits), you can set true, meaningful financial goals and hopefully save some money in the long run.

Here are the top steps and investing strategies you can take to be financially responsible in 2013:

  • Resolve to take a financial inventory. Figure out where your money went in 2012. Looking back at old bank statements is the best way to find where your money is leaking, such as with valueless fees or subscriptions that are no longer in use. See if you can determine exactly how much you spent on leisure purchases, such as eating out or going to the movies. You can use this inventory to determine financial strengths and weaknesses, which will in turn help you to maximize your savings (even if to pay off a future tax bill) and investment capital.

  • Go on a financial diet. Figure out how much you need for monthly expenses and then put all the rest into some hard-to-reach place so you will avoid temptations to spend. Avoid the urge to spend any year-end raises and bonuses; these can be saved automatically through direct deposit without impacting your current lifestyle. Save now, spend later!

  • Organize your records. The best way to keep your budget on target is to make a list of all monetary obligations for the year to come and plan accordingly. You should also consider how your tax liabilities will change in 2013 and what your disposable income will be as a result. Many commercial banks give their clients tools to help organize and set aside funds - it's worth asking your bank if these resources are available to you.

  • Get (your investments) into shape. Now that another year has passed, check the fitness of your financial portfolio by revisiting your asset allocation to see if your investments will work out in the existing economic climate. The fiscal cliff and some of the Fed's recent statements should motivate investors to tactically change their portfolios so they will react well to anticipated events or policy changes.

  • Consider stocks with dividends. Dividends are still being preferentially taxed with the highest rate at 20 percent, which I believe makes dividends stocks a potential supplement to fixed income investments that are not yielding much currently.

  • It's a good year to defer compensation. The recent tax increases have made contributions to 401k plans and qualified IRAs, along with other deferrals, more valuable to savers. Expect to see more investment products that will defer income into the future when tax rates may be less or when people can determine how much money to draw depending on the tax situation at that time. The increase in taxes may not be over, so in anticipation of what may come, savers should look into their options for deferring income.

  • A little debt (long-term) won't hurt you. This is also a good time for some people to have long term debt, especially low interest mortgages that have tax advantages. Due to the deductibility of interest and the ability of it to act as an inflation hedge, there is really very little motivation to pay down a low interest mortgage unless one is very risk averse.


Lastly, when in doubt about key financial decisions, seek a second objective opinion from an investment professional. Even the most seasoned investors could find it helpful to speak with someone who has specialized investing and advisory skills. A qualified investment advisor can be a sounding-board for your strategies, and can help you stay focused on your long-term saving and investing goals.

Best of luck with your resolutions! Just make sure you don't neglect your finances this year.

 
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