In 2010, we saw the average American household slip deeper into financial distress. Fortunately, the start of a new year offers a great opportunity to be proactive about getting our financial lives in order and experiencing financial peace of mind. So if your personal budgeting skills need refreshing, or if your portfolios and insurance policies have not been recently reviewed, then committing to the following eleven resolutions can help make 2011 the year you achieve financial fitness.
1. Resolve to spend less than you make. The oldest financial advice is still the best -- spend less than you take in. This will keep you out of debt and help you build fiscal stability.
2. Automate your finances. If something isn't easy, most of us simply won't do it. Make it easy on yourself by using a secure online budgeting systems to track and categorize your expenses. You can save hours of work every month while also taking control of your spending habits.
3. Create a spending plan. Determine how much you plan to spend and divide that money among your different spending or expense categories. Give yourself some flexibility to allow for some of those impulse buys without ruining your overall plan. Individuals who successfully create and follow spending plans often save as much as 10% of their income during the year - simply because a spending plan guides them in making good spending decisions.
4. Save at least ten percent of your income. If you don't pay yourself first, there won't be any left over at the end of the month to save. Set up an automatic transfer to a savings account to make it easy.
5. Start an emergency fund. Use part of your savings to create an emergency fund. You should have three to six months' worth of expenses set aside in an easily accessible account to cover mortgage, food, car payments and other necessities in an emergency. Keep it separate from other funds to avoid spending it.
6. Pay at least the minimum on your credit cards. And pay off as much extra as you can. Making at least the minimum payment on time accounts for 35 percent of your credit score. Resolve to take control of your credit card usage and set a goal to pay off outstanding balances as soon as possible. Paying off the entire balance each month can save you hundreds of dollars in interest.
7. Begin paying off your debts as quickly as possible. In today's economy, the best investment you can make is to quickly pay off all your debts. Use the debt roll-down principle to accelerate how you pay down your debt. Used correctly, the debt roll- down doesn't require any dramatic changes in your spending habits while cutting years off your long-term debts and dramatically decreasing how much interest you will pay.
8. Contribute enough to your 401(k) to get the maximum company match. Your kids can get help to pay for college, but no one will help pay for your retirement. If you're not taking advantage of a company match, you're turning down a yearly bonus from your employer.
9. Review and readjust your portfolio. Make sure that no single stock comprises more than five percent of your portfolio. As your different investments perform differently, your distribution will become skewed. Readjust your holdings to match your desired distribution.
10. Check your credit reports. You're entitled to one free copy of your credit report from each of the three credit-reporting agencies at your request each year. Stagger the reports receiving one every four months to keep an up-to-date view of your credit throughout the year.
11. Review your insurance policies and update as needed. Review your life, health, home, auto, and disability insurance policies. Make sure you have cost replacement coverage on home and auto insurance, as well as good liability coverage. Make sure your home insurance reflects the current value of your home.
While it may seem daunting at first, almost anyone can get their financial house in order by following these basic steps. Imagine the success and relief you'll feel next year at this time if you commit to these resolutions. You have nothing to lose but your frustration and debt, so make this the year you become financially fit!
Steven B. Smith is the author of Money for Life: Budgeting Success and Financial Fitness in Just 12 Weeks! and creator of Mvelopes, the award-winning online envelope budgeting system, and Money4Life Center (www.money4lifecenter.com/debt), a debt assistance and money management coaching program.