Insights & Advice


Recipes for Financial Health in the New Year

New Year resolutions, I suspect, will be quite popular this year, especially in the financial and investment areas. Given the horrible losses most of us sustained last year in our retirement accounts, followed by a pink slip at work for over 10% of us, makes for a bit of soul-searching as 2009 comes to a close.

According to a survey conducted by on-line broker TD Ameritrade Holding Corp., 75% of people plan to make at least one personal financial resolution this year. That’s a high number, but a half dozen other surveys confirm that that there will be a substantial increase in people that have put improving their finances at the top of their resolution list. There has also been a sharp increase, according to these surveys, in our willingness to start to build (or re-build) our tax-deferred 401 (K) and/or IRA plans.

It turns out that young people (ages 18-34), are more likely to make a New Year’s resolution than any other age group. Overall, 63% plan to save more money regardless of age while 48% say they plan to reduce debt. Given these numbers, I thought I would give readers a simple “how to” list in order to achieve these goals.

Start with creating a budget and including your family in this process. For some inexplicable reason, talking about money among most American families has been a taboo subject. We can no longer afford that antiquated misconception. So sit down and figure out where your money is going every month, beginning with non-negotiable bills like mortgage, auto and utility payments. Add in things like tuition, and whatever other bills must be paid. Then, over the next 30 days, calculate your variable costs—food, clothing, gas, video rentals, movies, cigarettes, liquor, etc. Now calculate what’s coming in.

Resolution one: under no circumstances can your cash out-flow exceed your cash in-flow. If it does, cut your variable costs and/or increase your income. That may mean a side job for you or another member of your family or cutting down variable costs that over the years you talked yourself into believing are necessities.

Along those same lines, cut up your credit cards unless you’re paying off your entire credit card balance every month. Credit card debt is one of the worst financial choices anyone can make. If you are in over your head, you may qualify for a modified payment plan with reduced interest rates. Call your credit card company and explore your options.

Resolution two: if you’re lucky or rich enough not to be in debt or at least your debt is manageable, spend less and save more by investing automatically. It has never been easier. Resolve to talk to your employer today about automatically depositing from your paycheck, the maximum amount into your tax-deferred savings plan –401(K), 403(B), Traditional or Roth IRA, SEP IRA, Profit-sharing, among others—next year. Actually, you still have time (until April 15, 2010) to contribute the maximum amount for 2009 into your IRAs. If you can’t afford the maximum (after doing your budget) contribute the most that you can, but do it automatically. Don’t make the mistake of thinking you will have the discipline to take that money out of your paycheck each month and save it. Statistics show that less than 10% of us are disciplined enough to do that.

If you are already doing these things then here are two more suggestions. Start an emergency fund which will cover three-to-six months’ worth of expenses and use it only when the roof caves in, the dog needs an emergency operation; you get laid off or another emergency of a similar nature.

In addition, make sure you have adequate insurance coverage for health, life, auto and home. There is nothing like one of the above, un-insured emergencies to set you back ten years, wipe out all your savings, and send you to the poor house deeply in debt.

Finally, financial resolutions are much harder to make and keep then other personal resolutions so don’t give up just because you can’t execute your resolution perfectly. It’s attitude that counts. Saving ten dollars is better than spending ten dollars you don’t have. Making less than the maximum contribution to your tax-deferred saving plan is still better than not making any contribution at all. I believe that 2010 will be a far more promising year for all of us if we focus on our financial health. It’s long overdue.

On New Year’s morning, Bill and Barbara Schmick will be kicking off 2010 with more on the subject of financial resolutions and how to make them happen.
Tune in Friday to “@theMarket,” a half hour investment radio show co-hosted by Bill and Barbara Schmick, of Berkshire Money Management, located in Pittsfield, MA.
Station Time
WNAW (AM1230) 8:35am
WSBS (FM 94.1/AM 860) 9:35am
WBEC (AM 1420) 11:05am
A recording will also be available on Berkshire Money Management’s website,, every Friday afternoon.

Posted in Financial Planning, The Retired Advisor