New Year’s Resolution: Financial Control

Five Step Plan to Better Financial Health in 2009

By Stephen Mazeika 

This year like any other has had its ups and downs, but undoubtedly the most adverse aspect of 2008 was the economy. The state of Americans’ personal finances and those of the business world have left a sour taste in many consumer’s mouths, and while most sipped champagne to wash it out on New Year’s Eve, consumers should also think about taking steps to better their financial health in the coming year.

Start with the Basics

Most people at least have some idea of where they stand as far as their general finances are concerned, but if you haven’t checked your account statements lately that’s the best place to start. There’s no better time to do this than the start of a new year.

Besides this, there are several other quick tips that are simple yet effective in helping people secure better financial positions.

Cash Reserves

Having several cash reserves on hand is always a good ‘rainy day’ backup plan just in case something happens. Experts typically recommend saving at least six months worth of income for emergency purposes. A great way to do this is to reduce unnecessary spending such as eating out frequently and gambling, and rethink large purchases such as vacations and cars.

Budgeting

Keeping a mental count of your running total expenses versus your weekly or monthly income is one way to consciously track your finances. Be conscious of your fixed costs such as bills and necessary living expenses so you know how much disposable income you have left. This can also help reduce reliance on credit, as proper budgeting will preserve cash you earn.

Know your Score

Checking your FICO score is another essential way of keeping tracking of your financial health. This will not only keep you aware in case you need to take out a loan or are applying for certain things that require a credit check such as an apartment lease, it also will be an easy way to spot inconsistencies that can be associated with identity theft.

Take a Proactive Approach

Recently named the #1 crime in America, identity theft affects 200 million people annually. Refrain from giving out your social security number unless it is absolutely necessary. Destroy any compromising account papers and bank statements that might contain information that thieves can use to clean you out. Also, don’t unnecessarily carry things you don’t need on your person such as an excess amount of credit cards, social security cards or checkbooks, especially if you plan on taking vacations. Don’t become a victim, and if you notice something suspicious call your card provider as soon as possible.

Diversity is the Key to Success

Whether you’re a seasoned investor with an extensive portfolio or a recent college grad trying to get your feet wet, talk to your investment advisor about diversifying your portfolio. In this recessionary economy, it has never been more important to spread your money out over many different industries, debt/equity instruments, and other investment channels. This ensures a high degree of damage control in case one or some parts of your portfolio take a hard hit, and increases your chances of growing your wealth exponentially in a fast and efficient manner. Perhaps most importantly, it spreads out your risk, thus minimizing chances of a total portfolio collapse - a nightmare that no one wishes to experience if they can avoid it.