January 15, 2005 06:05 AM
Five Keepers
Excerpt: With that in mind, here are five resolutions that are at the core of good financial planning.
It's not a fluke that many Americans put financial goals near the top of their New Year's resolution lists. People know that these resolutions are important and that they can affect their entire family.
With that in mind, here are five resolutions that are at the core of good financial planning.
These are not preachy or change-your-entire-life goals such as "swear off credit cards" or "stop drinking gourmet coffee and dollar cost average the savings into a mutual fund" that are so over done.
Each of these resolutions, if accomplished, can improve cash flow, protect assets or, more importantly, provide for the financial security of loved ones.
1. Discuss money with family
This can be as simple as writing down why money is important to you and then sharing it with your spouse and/or kids.
While a number of couples handle day-to-day finances with no conflict, they may be surprised to discover that they don't share the same financial goals or maybe they don't agree on how to reach certain goals.
Also, although many people have no problem discussing money with their families, they simply choose not to. It's not uncommon to run across couples in which one person is totally in charge of the family finances and the other is completely uninvolved - this is not smart.
Finally, it's essential to talk to your kids about money because they are rarely taught about money matters in school and learn about the "real world money issues" when they leave home. You have to teach your children how to be good stewards of their own financial future; they won't learn it through osmosis.
2. Replace bad debt with good debt
Bad debt is debt on things that aren't increasing in value and on which you're paying a high interest rate. The best example: credit-card debt used to buy food, clothes, etc.
No financial resolution would be complete without at least touching on credit-card debt. Americans are carrying more and more debt all the time -- and balances rarely go down during the holidays!
This year, commit to replacing your highest-interest-rate debt. You can "replace" this bad debt with good debt by getting a home-equity line of credit or a low fixed-rate loan from a credit union. Use this good debt to pay off your credit-card debt and then set about re-paying the loan.
I particularly like the idea of using a home-equity line of credit to pay off credit-card debt because it's typically a low-interest-rate loan, the interest is generally tax deductible and the asset on which you've based the loan -- your home -- will more than likely appreciate.
Just remember this: once you replace your bad debt, make every reasonable effort to avoid accumulating any more.
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