Posted on: Monday, January 4, 2010

Start 2010 Right

By Paul M. J. Suchecki
Tags: Credit Improvement, personal finance, ...
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The holiday celebrations are now over. Many of us are looking at expanded waistlines, and lighter wallets. Some of us have come up with a list of New Year’s resolutions that we intend to follow. Here are a few that would better our finances:

Budget. It is tough to limit what we buy especially in the light of the cultural pressure we face. I’ve written a number of TV commercials where the goal was to tie a viewer’s emotional fulfillment to a purchase. We are bombarded by messages like this day and night. There is nothing wrong with a feel good buy now and then, but you won’t be happier if you find yourself taking years to pay for an extravagance.

Begin by tracking your current expenditures to see what you are buying and where you can potentially trim. Something as simple as brown bagging lunch can save you $1200 a year. Be sure to save something out of each paycheck. If it ends up the right retirement account, it can be deducted from your gross income. 

I also suggest personal accounting software and on line banking which will give you an instantaneous picture of where you stand.  These programs can also help you track your net worth which will give you an incentive to be frugal, as you watch your wealth grow.

Use cash when possible. It’s painless to pay with plastic compared to folding money. Countless surveys offered to entrepreneurs show that those opening their own business should accept credit cards from the start because the 3% fee taken by banks for card purchases is more than offset by increases in sales. Over the holidays I happened to notice a credit card bill next a phone I was using. The family that made the charges had gone to Wal Mart one day in October and spent more than $400. - for what? This is at a store that sells sweaters for $7 and DVDs for as low as $5. Paying cash would have trimmed that total. If you don’t like to carry a lot of specie, then use a debit card. You can always back it up with a savings account to avoid overdraft charges.

Try now to restructure your debt. If you can refinance your mortgage, start the process soon. Most economists predict mortgage interest rates to rise to 6% this coming year. If you’re carrying a lot on your credit cards, try for cash out refinancing, or even a lower interest personal loan. You’ve probably gotten a bunch of mail recently from your credit card companies. Open and read it. With the passage of the Credit CARD Act of 2009, bankers are scrambling to raise interest rates in advance of new February regulations. Those notices are telling you of the increase now. Be prepared for a shock. Some of your erstwhile friendly lenders will be boosting interest to 30%.

I looked at one credit profile last week where the debtor had done exactly the wrong thing, paying off his student loans and a car with their relatively low interest, while keeping balances on credit cards at their high rates. He boasted that his education was now paid, and his car was unencumbered, yet the freedom that his chariot offered was illusory since he was charging gas and maintenance, carrying that balance at 18%.

If a bank won’t give you a loan, consider peer to peer lending, at sites like Prosper.com where you’ll essentially cut out the middlemen between borrowers and lenders providing better deals than found at financial institutions.

Be sustainable. The real growth area in our economy over the next few years will be in green jobs and products. When you do buy something for the home, add energy and water costs into the equation. Should you get the cheapest washer dryer combination? Don’t do so if the ultimate amortized cost is higher than for appliances that are energy and water efficient. Expect expenses for those resources to rise in the next decade, increasing your savings.

Next to your home, your car is probably your next biggest expenditure. Do you really need the low gas mileage and high maintenance of an SUV? If you children will soon to get their own licenses and they are already finding it uncool to ride with their parents, you might be able to get by with a hybrid, or electric car like Nissan’s Leaf or Chevrolet’s Volt.

Give yourself some mad money.  Don’t keep the lid on every expense. If you allow yourself a few bucks to blow each week, it will act as a safety valve. $20 for a pair of movie tickets won’t break your budget, but could provide much needed relief and fun, taking the edge off any sense of deprivation you might be feeling.