Have you ever put an old chestnut like “save more” or “spend less” on your list of New Year’s resolutions? I’ve done it, too, with results undetectable by the most precise financial calculator.
Instead, here’s a top ten list (in traditional David Letterman order) of concrete resolutions you can actually accomplish. I’m not saying they’ll be easy, but all of these are either on my list for 2010 or are resolutions I’ve successfully completed in years past. Pick a couple of favorites and go to town on them. Happy new year.
10. Make or update your will. The number one reason people don’t do this is that they believe they will never die. If you are, in fact, immortal, go ahead and skip this one. Otherwise, if you have a simple estate, you can make a will on the cheap: get Nolo’s Simple Will Book or use their Online Tool for $70 (and it’s on sale for $50 until January 7). If you have a complex estate (do you employ a chauffeur with a name like Worthington?), get a lawyer and remember the first rule of estate planning: don’t forget a little something for your personal finance columnist.
9. Set up an automatic savings plan, if you don’t already have one. Even $5 a week is a fine place to start. SmartyPig works well for this. Pick a specific goal, check your progress periodically, and don’t mess with it—except to increase the weekly allotment.
8. Get rid of useless crap. No time like the present
7. Start a business. Hmm, that sounds too ambitious. Instead, start a side project that happens to be tax-advantaged. And start small. It could be selling crafts on Etsy, any kind of shop or repair work (I sharpen knives, for example), or even freelance writing. Go legit—get your city business license and file Schedule C. Why? Even if you don’t itemize, business expenses are tax-deductible. It’s fun to get paid (even a little) for something you enjoy. And if you become un- or underemployed, having an existing side business gives you something to focus on. Which brings us to…
6. Simulate bad news. Armies and city governments run disaster simulations. You can play the home game, the financial equivalent of testing your smoke alarm. Are you doing enough to prevent an emergency or life change from becoming a financial disaster? (Oh my God, I totally sound like an insurance salesman.) This year, evaluate your insurance, your emergency fund, and your family’s plans in the event of job loss, natural disaster, death or illness, and other bad things. This will not be fun, but you know what would be less fun? Doing it during the actual emergency.
5. Plan for financial good news. Now, this is more like it! Here’s hoping you get a raise, bonus, or inheritance this year. It’s about damn time, right? (I mean, not that I’m actively hoping you get an inheritance. Unless it’s from a rich uncle you never met.) Furthermore, here’s hoping you spend some of it on fun and some of it on long-term goals. Decide now. It’ll take you five minutes. What percent of any unexpected income will you set aside for retirement or the emergency fund this year?
4. Talk to your relatives about a gift moratorium. I know, sounds like negotiating with North Korea. But if you do raise the idea, do it in the summer—far from winter holidays and not too close to anyone’s birthday—and make the terms clear (maybe children and handmade gifts are excluded from the cease-fire, say). Explain that it’s not because you don’t love getting presents, but because you’re taking charge of your financial situation and find it hard not to spend on your wonderful siblings and cousins and uncles without making a pact. Oh, if my parents are reading this, next year I’d like a stocking full of candy and a donation to my favorite charity. And a chauffeur. Kidding!
3. Look into Roth IRA conversion. As of 2010, there’s no longer an income limit for converting a traditional IRA to a Roth IRA. (If you couldn’t convert to a Roth in the past because you made over $100,000, congratulations.) Converting your traditional IRA (or an old 401k or 403b) to a Roth may or may not be the right move for you—talk to your financial adviser—but if you’re even considering it, you’ll need to think about where the money will come from to pay the tax on the conversion. Good news: you can pay the taxes over the course of two years.
2. Take a nice vacation. You’ve earned it. Just one rule: you have to pay cash, and you have to save up the cash with the vacation in mind. This year we’re taking a family vacation to Japan; we’ve been planning and saving for it since 2007. If you follow through on this resolution, do me two favors: have a great time and don’t invite me over to watch your slide show.
1. Don’t buy a house. Okay, maybe this one is just for me. Have you ever saved up for something and then realized you didn’t want it anymore? For years, my wife and I have been socking away money every month into our down payment fund. And it’s getting awfully close to our goal. Due in part to the housing collapse, however, we have completely lost interest in buying a house. So one of our resolutions for this year is to determine how to reallocate that money—probably to beef up our retirement savings and emergency fund. Although, come on, how much can a chauffeur cost? Seriously, that much? Never mind.
Matthew Amster-Burton, author of the book Hungry Monkey, writes on food and finance from his home in Seattle.