A Belated Happy New Year

Just eight ideas for the New Year.

1)Determine your net worth on a monthly basis. Know the approximate value of your home and how much you still owe on the mortgage. Know the totals of your outstanding loans and credit card balances. Add up the value of your cash, stock, bonds, CDs, money market funds, bank accounts, and IRAs. Make sure you are heading in the right direction.

2)Quantify your goals. If you want to buy a house, determine how much that house will cost, the required down payment, all the fees and taxes associated with the purchase of a home in your jurisdiction, and the monthly payments. If you want to retire, run the base calculation for retirement. Guaranteed Annual Pension + Expected Annual Social Security Payout + (Investments) X 0.04 = Your projected retirement annual income -- I want to buy a house or I want to retire are dreams. Quantified they become goals.

3)Constantly work on an evolving strategic plan. This could be as simple as I will save $5,000 a year over the next 4 years in order to place a 10% down payment and cover all charges associated with the purchase of a $100,000 home.

4)Start an emergency fund. If you don’t have six months take home salary in free cash, you still need to work on an emergency fund. If you don’t have any money in such a fund, start with the next paycheck. Put aside whatever is reasonable every time you are paid. Rainy days happen.

5)Know thyself. Take a little time to examine your financial habits. Are they working or do they need a little fine tuning? How much are you saving? How much are you spending? How much are you earning? Where are you investing your money? Any room for improvement?

6)Find your sleeping point. I could have included in know thyself but it is really a bit different. “J.P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, 'What should I do about my stocks?' Morgan replied, 'Sell down to your sleeping point' Every investor must decide the trade-off he or she is willing to make between eating well and sleeping well. High investment rewards can only be achieved at the cost of substantial risk-taking. So what is your sleeping point? Finding the answer to this question is one of the most important investment steps you must take.” -- Burton Malkiel

7)Take free money wherever you find it. Most notably if your employer offers matching funds on a 401K plan. Take the money and run. What a deal, you save a dollar, you are given a dollar, all tax deferred.

8)Do not spend money you don’t have on things you don’t need. This one piece of advice that will save you a great deal of financial pain. You don’t need a new smart phone. You don’t need a big screen HDTV. You don’t need a new BMW. Now, if you have the discretionary cash for any of these wants, go ahead and enjoy your money. But don’t call wants needs and don’t borrow money to buy them.