Holiday Hangover? Fix Your Finances
Karina's head felt like it was spinning out of control. When she stood up, her knees were wobbly. Her head felt clammy. She was suffering from a Holiday Hangover ?-- not from too much eggnog but from too much shopping.
Karina is not alone. As the New Year begins, many people feel financially battered and bruised by their holiday spending. January is typically a time for New Year resolutions. Many people vow to lose weight, get in shape, spend more time with their kids, etc. We'd like to suggest that January is also a great time to commit to fixing your finances. We've highlighted three key areas to check in on to help you start 2008 with the right step towards your financial success.
- Check your savings rate. You may recall from previous columns that we suggest saving 15 percent or more of your gross income (i.e. your before-tax income). While it will be different for each individual given your specific circumstances, over time, that 15 percent breaks down to roughly 5 percent for near term needs such as an emergency fund and big ticket items and 10 percent for your retirement. We also want to remind you that knowledge is power. That means that even if you can't save 15 percent of your gross income today, simply knowing your end goal is very powerful. You're working towards it, and that's what matters. With commitment, you can get there. We've met people who can save on salaries of $30,000 a year and people who can't save a penny on salaries of $300,000 or more. If you need additional help, Chapter 5 of our book "On My Own Two Feet," provides budgeting tips that can help you achieve this goal.
- Check on how your hard-earned and hard-saved money is invested. If you were watching a ball game, you'd want to know who was playing and which team won, wouldn't you? You want to have the same attitude with your investments. Most people don't know how their money is invested or how those investments did. January is a great time to open up your year-end statements and see what you own. You can do some research online, call your mutual fund company or check with your employer-sponsored retirement plan administrator to find out how your investments did. If you don't understand something, odds are high that others don't as well. Don't be afraid to ask questions. Believe it or not, investing doesn't have to be hard and often the keep-it-simple plan is the best one.
- Make sure you important papers are up-to-date and easy to find. Do you have a Will? Make sure you know where it's stored and that it's up-to-date. Many people who have a Will either forget where it is, forget to tell loved ones where they can find it, or forget to update it as their life changes (have children, get divorced, etc.). In addition, make sure your beneficiaries for your life insurance and employer-sponsored retirement plan are also up-to-date as those beneficiaries will trump what you have in your Will.