Do It Now
Ten big New Year's resolutions. Ten strategies for achieving them. The key: Address the real reason it's tough to get started, then take one step at a time.
(MONEY Magazine) – RESOLUTION ONE 1 Save More Money
Trying to save by cutting discretionary expenses--daily lattes, for example, or meals out--requires the kind of joyless discipline that few of us can sustain long enough to make a difference. The real trick to saving more is to take your will power (or lack thereof) out of the equation: Automate the process.
1 | Max Out Your 401(k)
More than half of all eligible employees aren't taking full advantage of their company's 401(k) match. And a third haven't even signed up.
• Keep it simple Don't let anxiety about choosing from the sometimes intimidating number of investment options keep you from signing up. Check out Resolution No. 2 for simple ways to put together the right mix of investments. You can always change your selections later.
• Get all of the match Elect initially to contribute at least as much as your company requires to get the full employer match, which is usually between 3% and 6% of your salary.
• Create your own plan If you don't have access to an employer-sponsored plan, create your own facsimile: Open a conventional IRA, Roth IRA or SEP-IRA and have your bank transfer a set amount into it every month from your checking account.
2 | Ratchet Up Your Savings
Try these painless ways to accelerate your savings.
• Save half your raise Increase your contributions by half the amount of any salary bump you get (or, better yet, all of it). You'll increase your level of savings without cramping your lifestyle.
• Sign up for auto-escalation This feature is becoming more common in 401(k)s: You sign up once, instructing your plan provider to automatically increase your savings rate by an amount you choose (usually between 1% and 3%) on the same day every year. No fuss, no bother.
• Take baby steps Or bump up contributions yourself, starting with a percentage point or two. If you make $80,000, an extra 2% will add $1,600 in pretax dollars to your account by 2007, but you'll lose less than $25 from your weekly paycheck.
3 | Look Beyond Retirement
You can apply the same principles of automated savings to other goals, such as building an emergency fund or saving up for your kids' tuition.
• Automate everything Most major banks, brokerages and fund companies will allow you to set up automatic monthly cash transfers into a designated savings or investment account.
• Match the vehicle to the goal For your emergency fund, use a safe, liquid vehicle like an online bank or a money-market fund. For medium-term goals, look at short-term bond funds. To see how long it will take for your collective savings to hit seven figures, check out the Millionaire calculator at cnnmoney.com/tools. --JANET PASKIN
Stash Your Cash
Best bets for your emergency fund or other short-term goals:
• EMIGRANT DIRECT SAVINGS APR 4% CONTACT 800-836-1997
• HSBC SAVINGS APR 4% CONTACT 888-404-4050
• WESTERN FINANCIAL MONEY MARKET APR 4.25% CONTACT 877-932-1234
RESOLUTION TWO 2 Invest Smarter
The critical determinant of how well your portfolio performs over time is not the specific stocks or funds you pick; study after study shows that it's your mix of stocks, bonds and cash. The good news: Getting the right mix is not rocket science.
1 | Lay the Groundwork
First ask yourself these questions:
• How far away is the goal? Over the long run, stocks will probably be your biggest winners (13% average annual returns over the past 20 years vs. 9% for bonds). But they're riskier in the short run (biggest one-year decline: 22% vs. 3% for bonds). The sooner you'll need the money, the less you should hold in stocks.
• How much risk can I handle? Conversely, bumping up the percentage you hold in fixed-income investments will smooth out short-term ups and downs, at the cost of lower returns over time.
• What else do I own? Look at the total mix of investments you hold, not just, say, your 401(k).
2 | Follow the Formula
Use these rules of thumb to determine what percentage of your portfolio should be in stocks.
• Conservative Subtract your age from 100.
• Moderate 110 less your age
• Aggressive 120 less your age
Then adjust your mix for when you plan to retire: The longer you can wait to tap your savings, the more aggressive you can be. So increase your stock allocation by one percentage point for every year you expect to work past 65.
3 | Apply the Rules
The simplest way to divvy up your assets: Use index funds, like Vanguard's Total Stock Market Index and Total Bond Market Index (800-851-4999), that track a particular investment category. Or choose a life-cycle fund, which maintains a stock/bond mix based on a time horizon and adjusts as your target date gets closer (see page 90 for choices).
4 | Take It Further
To reduce risk and boost returns, diversify within asset classes. In the stock portion of your portfolio, you might divide your money among funds that invest in big, small and foreign companies. For help with this, use an online asset-allocation calculator like the one at cnnmoney.com. --TARA KALWARSKI
Investing Rule No. 1
Stocks for profit, bonds for safety. Own both.
Avg. annual return 1985-2004 13% Worst year -22%
Avg. annual return 1985-2004 11% Worst year -13%
SOURCES: S&P 500, Lehman Brothers aggregate bond index.
RESOLUTION THREE 3 Get Out of Debt
Getting out of debt, says behavioral economist Meir Statman, "is the financial equivalent of trying to quit smoking." Good intentions alone aren't enough. To kick either habit, you need to break your underlying patterns of behavior.
1 | Elect Plastic Surgery
You don't have to literally cut up your credit cards, but you must stop using them routinely if you're serious about paying off your balances.
• Go green For everyday spending, carry around a set amount of cash to use each week. You will find that you make better purchasing decisions when you actually have to fork over the green stuff and there's a preset limit on what you can spend--when you run out of money, you stop.
• Make debit your backup When only plastic will do (if you're buying online, for instance), use your debit card. The debit card can also serve as an emergency substitute for cash if you run out.
• Leave your cards at home Enforce the cooling-off period on new credit purchases by taking the cards out of your wallet. Store them in a place that's not easily accessible (in a safe-deposit box, maybe, or frozen in a block of ice).
• Don't close the accounts Having unused credit available from lenders with whom you've had long relationships will help boost your credit score.
2 | Lower Your Rates
With a moratorium on charging in place, shift your attention to paring down your existing debt. Start by reducing what you pay in interest.
• Do some comparison shopping Check cardweb.com and MONEY's credit-card tables on page 49 for lower-rate issuers.
• Consider a balance transfer Look for offers with a 0% introductory rate for a full year, relatively low rates thereafter (13% or less) and no annual fees. A couple of good choices: Discover Platinum (800-347-2683) and HSBC Platinum (877-277-0948).
• Play let's make a deal Call your current card companies and explain that you intend to transfer your balance to another issuer unless your rate is lowered, suggests Scott Bilker, author of Talk Your Way out of Credit Card Debt. If your credit score is above about 750, you should be able to get your rate under 10%, he says. And, he adds, you should still be able to knock a few points off your rate even if your credit score is as low as 650.
3 | Tackle Those Balances
Finally, develop a strategy for paying off your existing balances.
• Figure out what you really owe Gather your statements and make a simple table listing the amount you owe, and the minimum payment and interest rate for each card. This will help you determine the order in which you should pay off your cards. Then use the debt-reduction calculator at cnnmoney.com to see how long it will take to wipe out those balances.
• Focus on the highest-rate card first Pay as much as you can each month while making only minimum payments on your other cards.
• Automate your current minimums Late payments are the cardinal sin of debt management. You get slapped with hefty late fees and penalty rates that run as high as 30%, plus your credit score will take a hit.
• Go in order When the first card is paid off, use the same strategy on the next-highest-rate card and so on until you're debt-free. --J.P.
Carry cash Enforce a cooling-off period on new charges by storing your credit cards in a place that's hard to get to--say, freezing them in a block of ice.
RESOLUTION FOUR 4 Jump-Start Your Career
Whether you want a raise, a promotion, a new job or simply more satisfaction in your work, one strategy fits all: Not only do you have to do your job well, but you have to get other people to notice it. The most efficient strategy for raising your profile? Look for one project to set you apart from the crowd, and make sure you excel at it.
1 | Uncover Opportunities
Sure, you can earn points by volunteering for extra work. But don't just jump at anything. Identify a task that will have a big impact.
• Research ideas Ask a colleague how he got promoted; talk to your boss about her biggest challenges; stay on top of trends in your industry; pay attention to how higher-ups articulate corporate goals.
• Look for the niche you can fill Can you find a novel way to cut costs? Be the first to get trained in some up-and-coming technology? Take on an assignment no one else wants?
• Make it count Be sure that the project you pick is something that's valued by your boss, your company or your industry.
2 | Make Your Pitch
Once you've identified an opportunity, you should seek buy-in from your superiors.
• Write up a proposal Then pitch it to your boss. Few will say no if you have an idea for how things can work better, says George Hollenbeck, an organizational psychologist.
• Ask for guidance Set yourself up for success: Seek input from managers about the best way to handle the project and balance its demands with your regular responsibilities.
• Take no for an answer The effort is worthwhile even if your boss turns you down. "By advertising your ambition and enthusiasm, you get noticed," says Robert Lee, an executive coach in New York City. "You're not likely to be a candidate for bigger positions if you never raise your hand."
3 | Mark Your Territory
Establish yourself as a go-to person for your new project, task or area of expertise.
• Share your experience Talk with other departments that might find it useful.
• Offer to train colleagues You'll get points for staff development and earn the good will of people you work with.
4 | Brag--Subtly
You may feel uncomfortable blowing your own horn. But if you don't, no one else will.
• Tell your boss A simple way to get credit for doing something beyond the normal scope of your job is to send an e-mail updating your boss about the project, says Alexandra Levit, a marketing communications consultant.
• Pass on the good word Forward to your boss and other higher-ups messages praising your work, casting them as an update.
• Share the credit Send a thank-you note to others who worked with you on a project, and copy your boss. Talk about achievements in terms of "we," not "I." Your colleagues will appreciate it, and you'll be recognized as both a leader and a team player. --DONNA ROSATO
Expand Your Network
80% of jobs are found through personal contacts. Don't wait until you need a job to start networking.
Schedule lunch Pick a day once a month to take a client, colleague or other work contact to lunch. And then join a professional association. Consider volunteering on a committee where you can meet others in your field.
Have fun Make time for occasional social functions at work--the annual holiday party, after-work drinks, the company softball game. You'll be surprised at how information is exchanged and relationships are forged in an informal work setting.
Do unto others Help people you work with or hope to work with someday by giving them contacts and passing along information when you hear about opportunities. In work as in life, what goes around eventually comes around.
RESOLUTION FIVE 5 Spring for a Splurge
Everyone deserves an occasional indulgence. What's more, says April Benson, a psychologist who specializes in compulsive shoppers, "if you deprive yourself too much, you're set up for future binges." In other words, rewarding yourself with a planned purchase now helps stop you from blowing your budget with impulse buys later.
1 | Pick the Prize
Sit down as a family and write an uncensored wish list. Then for each item ask yourselves:
• Will we still want this a year from now?
• Do we want this more than anything else on the list?
• Can we buy it without going into debt? If you can't agree right away, give everyone time to think over the options, but set a deadline.
2 | Make It Real
Once you've identified the goal, keep it front and center. "If it's something we can feel, touch and taste, it's a whole lot easier to stay on track," says Gary Foreman, editor of Stretcher.com, a budgeting newsletter.
• Put a price tag on it Figure out the specific product or destination you want and find out how much it costs. That way you'll know just how much you need to save.
• Keep your eyes on the prize Cut out a picture and keep it in a prominent place, like on the refrigerator, so you're constantly reminded of what you're working toward.
3 | Create Your Game Plan
Strategize with your family about how you'll come up with the cash you need.
• Start with a bang Have a garage sale. Or save every $1 bill you receive for a month.
• Open a dedicated account Agree on small economies you can live with for a short time, such as brown bagging lunch. Calculate your weekly savings and have that sum automatically transferred from your checking.
• COLLECT SPARE CHANGE in a coin jar (it adds up fast). Encourage your kids to contribute by promising to match any amount they put in.
• SAVE WINDFALLS like your year-end bonus, income tax refund and FSA reimbursements.
4 | Stay on Track
• TELL FRIENDS and colleagues about the goal. "You'll be more likely to succeed if failure isn't an option," says Foreman of Stretcher.com.
• Track your progress Keep a chart of how far you've come and how far you need to go.
5 | Buy It
When you hit the goal, bring the whole family along for the purchase. Make a big deal of it. And then, of course, enjoy it. --CAROLYN BIGDA
Price It Right
Now that you have a goal, don't undermine your hard work by overpaying. Here are some sites that help you get the most for your money.
• ELECTRONICS Shopping.com, Shopzilla.com • TRAVEL Kayak.com, Luxurylink.com, Sidestep.com, Virtuoso.com • TICKETS Stubhub.com • FASHION Bluefly.com
RESOLUTION SIX 6 Protect Your Family
There's a simple reason that 55% of Americans don't have a will: "It's difficult to talk about death and money," says Colleen Barney, author of Best Intentions: Ensuring That Your Estate Plan Delivers Both Wealth and Wisdom. And it's even harder to make emotional choices about, say, who will raise your kids. But ignoring the topic could one day leave those tough decisions in the hands of a probate court judge. Try reducing the tension in the situation with a highly pragmatic approach.
1 | Start the Conversation
Accept from the start that there will never be a good time to talk about your own demise. So don't wait for one. Instead:
• Use the back door Raise the subject with a reluctant spouse by talking about someone else's messy situation--say, a co-worker who is battling his siblings over a parent's estate. Then shift to your own situation.
• Focus the discussion The key questions to answer: Who will inherit your assets? Who will be guardian to your kids? Who do you want to be executor of your estate?
• Make a date Schedule a consultation with a family or estate lawyer. The need to show up at the appointment with your decisions made will help keep you on task.
2 | Choose a Guardian
Deciding who will care for your kids is the toughest part of writing a will. Arguments over who's best--you want your sister, he wants his mom--can shut down the whole process. Turn it into a practical exercise:
• Make a list Jot down possible guardians and have your spouse do the same. Anyone you both name makes the short list.
• Score the candidates Ask yourselves: Is this person healthy? Is the family okay financially? Do they share your values? Get along with your kids? Are they willing?
• Split roles Still not sure? Consider appointing one person as the financial guardian to manage the kids' money and another as the personal guardian to care for them on a day-to-day basis.
3 | Make It Public
Discuss your choices with the guardians, your children and your extended family. Write a letter explaining how you want your children to be raised and another about how you'd like your possessions to be divided and why you made those choices.
4 | Write the Will
This is the easy part. If you're under 50, are in pretty good health and have less than $2 million in assets (which means you won't owe estate tax), you can write your own will with software like WillMaker (nolo.com; about $50). If your estate is large or complicated, or you just want some professional hand-holding, hire a local attorney with estate-planning expertise. To locate one in your area, go to findlaw.com. --D.R.
A Taxing Matter
$2 million The amount you can leave to heirs (other than your spouse) this year without triggering the estate tax.
RESOLUTION SEVEN 7 Free Up More Time
Making time for yourself and your family is the top goal for 2006, according to a MONEY poll. Lack of time is really two problems: You probably are too busy, and you aren't making the best use of the spare time you have. The action plan below will help you address both.
1 | Outsource a Task (or Two or Three)
Identify your most time-consuming, least enjoyable chores, and get someone else to do them for you.
• Delegate responsibility Are your kids pitching in as needed? There's stuff they have to do because they should, like cleaning their rooms and clearing the table. But you can make it appealing for them to take on a few extra chores by offering a few bucks for tasks that usually fall to you.
• Look online for help Tired of spending hours every weekend at the supermarket? Services like Freshdirect.com and Peapod.com will deliver your groceries to you. Cost: $5 to $10. Use an online community bulletin board like Craigslist.org to find a hired hand for other chores--cleaning your gutters, say--or place a free ad to get the help you want.
2 | Automate Bill Paying
Online bill paying is time- and cost-effective, but getting set up can be daunting. So start with just one bill.
• Head to your bank's website It'll take less than 20 minutes to sign up for the service and input the info required for that one payment. You'll need to enter your account numbers and the address to which payments will be sent.
• Add other accounts Once you're past the initial setup, it's easy to do more. Aim to add one account per month or input the info as the bills arrive in the mail. By year-end you will be fully automated or close to it.
3 | Take a Vacation
Some 30% of employees don't use all the vacation days they have coming. Make sure you're not among them.
• Put it on the calendar--now "Planning your vacation earlier allows you to time your workload and get as much done beforehand as you can," says Joe Robinson, author of Work to Live. It also allows you to coordinate coverage with your colleagues, commits you to a plan, and gives you and your family something to look forward to.
• Pay in advance Buy your tickets or put down a deposit for accommodations now too. You'll be more likely to actually take the time off if you'd be out of pocket should you cancel your plans.
4 | Relax, Really
Don't spend your free time the same way you spend your workdays: multitasking, overcommitting, rushing. "When you try for too much efficiency, it falls apart," says Penn State professor Geoffrey Godbey.
• Lighten up Resist the urge to overschedule. Leave time on the weekend to do nothing or to engage in just one activity at a time.
• Look for active rest What researchers say characterizes satisfying leisure: engaging in activities that use our skills or challenge us, spending time outdoors or socializing with people we like.
• Turn off the screen Studies show that long hours in front of the TV correlate to lower levels of overall personal satisfaction. So cut out the channel surfing and limit yourself to shows you really like. --J.P.
Where Does the Time Go?
The average American spends... 7.9 hours each day sleeping 5.5 hours working 2.3 hours watching TV 1 hour eating 49 minutes washing and grooming 47 minutes visiting (by phone and in person) 10 minutes relaxing and thinking 7 minutes on religious practice
SOURCES: S&P 500, Lehman Brothers aggregate bond index.