At this year’s end, “Get out of debt” continues to be the “get in shape” of money resolutions. Not far behind that popular chestnut, many people are aiming to raise their credit scores, and another major money resolution is to start or further enrich savings accounts for retirement, emergency, or a child’s education. Another money goal being tossed around this year is a return to using cash in hopes of spending less, and still others hope to teach children sound financial habits.
Experts in finance chimed in to sum up the biggest concerns they’re hearing among their clients, audiences and readerships. Here’s our roundup of goals for the new year—and in some cases, a little advice on how to achieve them.
Credit Cards vs. Cash
Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling, citing a poll on their website, noted that while 68 percent of over 2,000 respondents listed decreasing debt as their No. 1 goal for 2011, “consumers are apparently not interested at all in decreasing their dependence on credit cards,” because only 7 percent listed this as their goal. “This is interesting in light of the shift toward paying for purchases with cash or debit card instead of charging,” she says.
However, Nancy Skeans of Schneider Downs Wealth Management Advisors advises not to stuff bundles of cash away in a mattress.
“There is nothing wrong with keeping assets in cash if you have them for an emergency fund or forecast expenses (a car, house down-payment, impending college tuition)," Skeans says. "But cash, currently earning almost nothing, is not a long-term investment strategy. Both a diversified equity portfolio or bond portfolio would have provided better results than cash in 2010.”
Save More, Spend Less
In a study commissioned by financial services organization TIAA-CREF, the second largest payer of retirement benefits in the U.S., four in ten said their top financial goal in the New Year is to save more money for the future, and nearly six in ten Americans plan to achieve this by spending less money on impulse purchases in 2011. Almost half also intend to spend less on shopping, entertainment and dining out.
Too bad “spending less on the fun stuff” sounds like the kind of resolution that typically falls by the wayside. Manisha Thakor, a personal finance expert and best-selling author, offers this simple tip for saving: Grow savings by scheduling transfers between accounts, so that a set amount to be moved to a savings account each pay day. (She recommends a similar tip to protect/raise credit ratings: Automate recurring bill payments so they never miss a due date or pay a late fee again.)
Learning About Finances
Pete D'Arruda, president of Capital Financial Advisory Group, author and radio show host of the Financial Safari, advocates making a personal investing statement or philosophy.
“People should know why they are doing what they are doing, and why they own what they own,” D'Arruda says.
Damon Bates, vice president of the U.S. Insurance group for MassMutual, says that more than 40 percent of adults gave themselves a grade of C, D, or F for their knowledge of personal finance, according to the Harris interactive 2009 Consumer Financial Literacy Study.
“Yet the key to making good decisions about money management is education,” Bates says.
Prioritizing and paying closer attention to one’s investments and finances is the biggest goal seen lately by John Murphy, investment representative for Financial Network Investment Corp., in Maytown, Pennsylvania.
“This is especially the case with the pre-retirement crowd, namely those in their mid-fifties to mid-sixties. Prior to the downturn, investors were more generic in their 401k allocations. For example, they would look at a fixed account and an S&P 500 index fund and think they had done enough. Now they are more keenly aware of the difference between a large cap and a small cap fund as well as the difference between developed markets and emerging markets,” Murphy says.
Concerns for Retirees
The top resolution among retirees, according to the Principal Financial Group’s Q4 Financial Well-Being Index, was to reduce their spending by a specific amount each month (19 percent) followed closely by pay off credit card debt (17 percent) and put a set amount of money into savings each month (15 percent).
Dennis Marvin, CFP and principal at Marvin Wealth Management, has noticed that clients closer to retirement are putting their mortgages on equity lines of credit. Also, older people are reexamining their estate planning, says Lori L. Epstein, vice president of Advanced Markets at MetLife.
"As a result of the extended and often acrimonious political debate in 2010 about taxes on income and on estates, people will be prompted to take a closer look at their estate planning, ranging from basics like having a will to more complex estate planning issues," Epstein says. "Under the new law just signed by the president, the top federal tax rate on estates was cut to 35 percent and the individual exemption was raised to $5 million. However, the law is in effect for only two years. It is the law in effect when the person dies that matters for an estate. As the nation copes with huge budget deficits, the estate tax debate could well resurface.”