7 tips to makeover your finances in 2007
Published: Monday, January 8, 2007 at 6:01 a.m.
Last Modified: Sunday, January 7, 2007 at 11:29 p.m.
The eggnog may be drained and the last bottle of champagne uncorked as 2007 arrives. But if you're like most Americans, that sense of wooziness may soon return in the form of credit card bills as you pay off your celebratory extravaganza. What better time than January to make a few financial resolutions and get 2007 off to a smart money start.
Here are seven tips to get you going:
"Sixty-five percent of Americans carry balances on their credit cards. Only 35 percent of them pay their cards off in full," said Howard Dvorkin, author of "Credit Hell: How to Dig Out of Debt." "You may still be paying for last year's Christmas."
He recommends sitting down with all of your bills so you know what you owe and then figuring out a realistic plan to start paying them all off.
"You want to pay the cards with the highest rates, which typically are the department stores, which carry rates of more than 20 percent," he said. "Put your credit card away and start using cash until your balances are gone."
"Many people really neglect setting aside time to brainstorm about their finances, to talk to their spouse or family members," said Eric Tyson, author of "Personal Finance for Dummies." "You need to talk about what you want to do financially."
Saving is a state of mind. Even if you can't save much, just getting into the habit is important. Try brown-bagging lunch and skipping your coffee bar latte. The $10 you spend daily -- $3 for the latte, $7 for lunch -- can add up to more than $2,000 a year.
If your employer offers a match to 401(k) contributions, make sure you meet the requirements.
"If it's a 3 percent match or 6 percent match, it's like free money. If you don't contribute, basically you're missing the opportunity to give yourself a raise," Dvorkin said.
Some employers also offer other tax-advantaged benefits that let you use pretax dollars to for heath care, child care and dependent expenses and even mass transit.
There are also tax-advantage savings accounts you can set up on your own, including individual retirement accounts or IRAs, education savings accounts and medical savings accounts. It's worth a trip to the library or even a discussion with a financial adviser to investigate more. Your employer may also have information.
"It's easy to install a $50 computerized thermostat that will save you a lot," Dvorkin noted.
The federal government also wants you to think green. In 2006 and 2007 there are tax credits for certain types of home improvements, including insulation, windows, solar panels and more efficient boilers.
And, it may be common sense, but still bears repeating: Turn off lights when you're not using them, don't let the water run unnecessarily and regulate air conditioning and heating.
No one likes to think about worst-case scenarios, but you owe it to yourself and to your loved ones, especially if you have children.
"Pretty much everybody should have a will. Everyone owns something of value. People need to remember in absence of a will, the law dictates everything," Tyson said.
If you have a simple estate, try a software package, such as Willmaker, that will help you identify whether you need a lawyer.
People with children will likely need life insurance and to name legal guardians. You may also have other financial needs depending upon your situation.
Don't forget to make sure all of your documents are easily accessible and that someone knows where they are.
"There should be a one-page form that summarizes where everything is," Tyson said.
If you want your kids, your spouse or even your parents to improve their financial habits or you need to keep yourself motivated think about the example your spending decisions can set for others.
Kids who see their parents take brown-bag lunches, live by a budget or comfortably discuss money are more likely to do the same.
"If they're old enough, you can encourage your kids to make their own lunches or baby-sit or mow lawns," Dvorkin said. "It's a good first step in learning how to handle money."
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