Friday, January 8, 2010

New Year's resolutions about money talk..

New Year's resolutions Make your financial planning .
New Year's celebrations have always been a time for reminiscing about the past and looking forward with an optimistic eye toward the future.

Many of us reflect on changes we need to make in our lives and make commitments to follow through on those changes. Getting in shape, quitting smoking, spending more time with family and getting organized are all perpetual winners on annual tallies of most popular New Year's resolutions. The recession will likely put commitments to eliminate debt and save more money at the top this year's list, too.

These are all important goals. But, as anyone who has made and broken a New Year's resolution knows, achieving them takes more than just a midnight verbal commitment. Making lifestyle changes like these requires planning and a way to periodically assess your progress.

If your resolutions include improving your financial fitness, start by recognizing that all of your financial decisions are inter-related. Unless you have unlimited income, your financial goals all have to compete for the same resources. A decision to spend some of your income is also a decision about saving, and vice versa. This can make putting together a financial plan appear similar to assembling a jigsaw puzzle.

When you start working a jigsaw puzzle, the first task is always to turn over all of the pieces. The same holds true for solving your financial puzzle. So that you can see all the pieces and make sure they are all working together to help you achieve your financial goals, your plan should include a comprehensive review of your overall financial situation. This review should go beyond a mere assessment of your current investment portfolio. While investments are important for the success of your plan, making investment decisions without understanding the "big picture" can leave your plan vulnerable. If your current plan was put together piecemeal by purchasing financial products to meet specific needs without the big picture in mind, a comprehensive review will help ensure all the pieces fit together and identify any gaps that may keep you from achieving your goals.

Comprehensive planning means more than creating a retirement plan, actively managing your investments, and performing regular check-ups of your portfolio. True, for most of us, retirement is our most important financial goal. But comprehensive planning incorporates other life events, allowing you to plan for other goals and making sure you are prepared for potential events that can dramatically impact your long-term financial security. In addition to planning for retirement, college education, buying a new car or home, and making sure you are making the most of tax-savings opportunities, your comprehensive plan should include an insurance review to ensure your current assets are adequately protected. Because achieving your goals is wholly dependent on continued income, you need to make sure your life and disability insurance coverage is sufficient to keep your financial plan on course.

Putting together a financial plan can be a daunting task but commitment to the process can provide peace of mind and the tools to make better financial decisions. Using a process can help break the task into manageable pieces. Start by writing down your short and long-term financial goals, attaching a value and target date to each of them. Next, take an inventory of your current resources by writing down all of your assets and liabilities. This will tell you where you stand and give you a sense of whether your goals are achievable. Finally, put together a budget for the year identifying all sources of income and all non-discretionary and discretionary expenses. This will allow you to prioritize your spending, making adjustments to your discretionary expenses as needed to achieve your goals. Stay in charge of your plan by tracking your income and expenses monthly.

If your New Year's resolutions include taking charge of your financial future, start your comprehensive plan by completing these three steps in January and look forward to a more prosperous year in 2010.