Resolutions don't work—behavioral experts know that. When you wake up on Jan. 1 and emphatically say something vague like, "This year, I am going to get my finances under control—I really mean it!" there's a good chance your budget will end up where all those good intentions usually lead.
That's why it's better to make to-do lists instead. Each of the activities on my 2014 list are discrete and actionable, and don't take very long. Tick them off, one by one, and you'll dramatically improve your finances.
In 2014, you'll have more power, thanks to some consumer-friendly marketplace changes. A new focus on investment fees and 401(k) disclosures make it easier for investors to monitor those accounts. Credit card issuers are stepping up their marketing and competition, so there are better card deals out there. New applications make it easier to handle your money without ever physically handling your money.
Without further ado, here's my checklist for how to save and prosper in 2014:
- Embrace a record-keeping system. Just being able to watch your net worth move in response to your credit card transactions and the stock market will make you a much better financial manager. Quicken and its online cousin Mint, both from Intuit Inc, remain the category killers, but there are many other applications—including iBank, mvelopes, Spendee and Budgt that can bring your finances to your favorite devices. They vary—some are better than others at tracking investments and linking to a variety of accounts, so compare before you commit. Spend a few hours on one slow winter day setting it up and you'll save time and money all year.
- Learn one new thing every week. What's a price-earnings ratio? What are exchange traded funds? Does your credit card charge you a currency fee when you use it abroad? How much life insurance do experts recommend you have now? Which 529 plan is the most generous? The more you learn about financial topics, the better you'll get about managing your money. If you are interested in investing, consider forming a study group with some friends. You can choose one topic a week and research it in 15 minutes to a half an hour. In a year you'll be much smarter; in a decade you can be an investing master.
- Boost your 401(k). In recent years, many employers have been reintroducing and even increasing their matching contributions. Make sure that you are setting aside at least as much money as your employer will match. Add as much more as you can afford to add, unless your company's 401(k) only offers overpriced and underperforming investment choices. You can use the U.S. Labor Department's fee disclosure form to calculate how much you are paying for your 401(k).
- Rebalance your 401(k). So far, the average stock mutual fund is up over 32 percent and the average bond fund is down almost 2 percent, according to Morningstar. That means your retirement fund allocations might have gotten seriously out of whack. Within your retirement account (where there is no tax consequence for making moves like this), move some money out of stocks and into bonds, until the percentages of each type of asset held in your account fits your initial goals.
- Get a better credit card. If you're just using the card you've been carrying for years, you're probably not maxing out your rewards. Issuers have been increasing their rewards programs in recent months and years. Shop around at sites like lowcards.com or bankrate.com to find a rewards card that suits the way that you spend. Get a second card from a different issuer, so that if your card is hacked and canceled, you're not without the ability charge items and services while you wait for the new one to arrive.
- Put your debit card away. Last week J.P. Morgan Chase & Co. limited the use of Chase brand debit cards for those customers who had used their cards at Target Corp. stores, where there had been a massive data breach. That's just one reason why debit cards are not great for consumers. They don't carry the rewards that credit cards do. They pull the money out of your checking account immediately, instead of giving you the grace period that a credit card will. If your debit card number gets hacked and used, it can cause you to bounce important payments for everything from your mortgage to your car while your bank sorts out the mess. Used often, a debit card leaves you with long and complicated bank statements to reconcile every month. Unless you lack the discipline required to use a credit card for your everyday expenses and then pay if off monthly, do that instead.
- Put one investment on automatic. Open an account with a low cost mutual fund and instruct it to pull a specific amount out of your checking account every month. You won't notice the missing money. You'll accumulate a slush fund that will come in handy some year in the future.
- Comparison shop all year for those recurring expenses that cost the most—insurance, entertainment, technology, etc. For example, in January you can take a look at your auto insurance and make sure there isn't an alternative plan out there that is cheaper or better. In February, review your health insurance coverage and out-of-pocket expenses and determine whether it is your best choice—you have until the end of March to shop at Obamacare exchanges. In March, review your television costs and see whether you can cut the cable and embrace a cheaper streaming device. In April, look at how and what you pay for utilities and see whether there's a cheaper provider or energy-efficient solution that can save you money. You can go all year until you've found the best deal for your life insurance, college savings plans, your mortgage, your individual retirement account, your phone service and more.
You'll save buckets. Final item: Take those savings and put them in that slush fund. If you save and invest $1,000 this year, earn 8 percent annually and automatically add $200 a month, you'll accumulate $38,000 in 10 years and $122,700 in 20. Happy new year!
Linda Stern is a Reuters columnist. The opinions expressed are her own. Click here to read more of her work; Editing by Andrew Hay
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