Resolve To Manage Your Money Better In 2014

Dec 31, 2013

No matter how financially savvy you are, there’s always room for improvement.

Better educate yourself.  

Get a dictionary of financial terms. Each time CNBC or Bloomberg or your favorite news feed brings up something you don’t understand, look it up. You don’t even have to buy a book; just enter the term into a search engine or consult one of the many financial references online, such as investopedia.com.

Learn the differences that separate stocks from bonds and gold from real estate. Find out average annual returns for each investment class. Consider that when you devise an investment plan.

Sit down and evaluate the risks you’re willing to take. Over the long run, stocks offer the best returns. But you might be more comfortable with less risk in lower-returning bonds or even certificates of deposit.

It is said that when you lose sleep over your investments, you should trim them down to the level at which you can sleep. That’s okay, but you can do better:  fully understand what you’re investing in. If you’re familiar with all the risks from the start, you won't toss and turn so much at night.

Create a budget. Sure, it sounds tedious, but you can make it less so. If most of your bills are paid with a credit card, add the amounts for three months, average them, and you’ll have a ballpark figure.  

Target 10 percent of your earnings for investment.

If ten percent is too much, pick another amount and stick with it. Plan to increase the amount periodically, say quarterly or every six months. Saving can be habit-forming.

The first of the year is a great time to review your retirement plan.

If your employer offers a match for your 401(k) contributions, check to see if you’re taking full advantage of it. If not, you’re leaving money on the table.

Devise a plan to max out your 401(k) contribution. If you’re under 50, the IRS says you can put a maximum of $17,500 into your 401(k) in 2014. Those over 50 can put in $23,000.

It may be too hard to max out your contribution right away, but you can get there eventually by resolving to increase your contribution every year until you do. And don’t forget, boosting your contribution can lower your current tax bill, which will ease the pain of stashing more money away for retirement.

If you've maxed out your 401(k), resolve to open an IRA

If you have a spouse or partner, you need to work these things out with them. You both need to be on the same page. At the same time, make sure someone else knows what you intend to do. Achieving your goals works better with peer pressure. You just don’t want to let them, or yourself, down.

At the very least, resolve to review your financial situation at least once a year. Ignorance is bliss…but only until the creditors come knocking at your door.