That resolution to 'save more' might be short on specifics and strategy. Our experts offer advice on exactly how to get your finances on track.
Related topics: stocks, 401k, airfares, accident, airlines
With the New Year came a host of resolutions. Many of us offered a pledge to be smarter and more dedicated to our finances in the unfolding year.
What moves will not only guarantee financial success in 2011, but set the stage for achieving longer-term objectives?
The starting point, according to Frank Braddock, a financial adviser with JHS Capital Advisors, is drafting a blueprint.
"We are telling folks to sit back and really do a good financial plan," he says. "I think that keeps people on track and helps them when things get weird. A written financial plan helps you focus on where you are trying to go and maybe not panic when things get as dicey as they have been. I think it forces you to take a step back from the day-to-day and look at what you are trying to accomplish."
A financial plan is about more than chasing gains. Braddock says people need to "have a real conversation about risk and managing risk."
"When you sit and look at where people were five to seven years ago, they thought they were much more risk tolerant than they actually proved to be," he says. "Risk comes in a lot of different guises I don't think folks really think about. When people think about risk, they think about losing money, which obviously is a big thing. But the risk of not getting where you want to go and running out of money, longevity risk, is the single biggest risk that clients face."
"You can't manage what you don't measure, so quantify goals," says Neal Ringquist, the president and chief operating officer of ASI Advisor Software, maker of goalgami, a free online, goal-based financial planning tool. "Control what you can control. You can't control the performance of the markets, but you can certainly control what your goals are and how much you can contribute and save towards them. Depending on what your goals are, there are lots of little things to do."
Here are some of those easy steps to take:
1. Ratchet up 401k contributions to, at the very least, take advantage of a company match. For all those who haven't already, Ringquist says, this should be the year.
2. Add the 2% reduction in FICA taxes directly into retirement savings. This Obama administration tax break adds to the incentive to lock in 401k deposits to the limit.
Other moves can blend frugality and creativity to achieve short- and long-term goals.
3. Credit card rewards programs connected to 529 savings plans (tax-advantaged, return-bearing college savings vehicles overseen by states), are underused by those saving for college expenses, he says. A variety of credit cards can be used. Fidelity, for example, offers an American Express card where every month the points accrued are rolled automatically into a 529 plan designated by the holder.
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