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.”
When Intuit polled more than 1,000 small business owners across the U.S., it revealed a positive outlook for the year ahead, with 60 percent saying they expect their business to grow in the next 12 months despite the economic climate (a 6 percent increase from last year.)However, 54 percent of small business owners said a decline in customer base was the hardest part of running their business this year, while 32 percent said delayed payments was there biggest pain point.
Intuit’s poll found the top New Year’s resolutions for small business owners are focusing on retaining and growing current customers (56 percent), expanding marketing to attract new customers (41 percent), and reducing costs and save money (30 percent).
Caution vs Optimism
“The extended economic downturn has caused many people to make resolutions that deal more with safety/security/stability rather than resolutions that involve making more money/finding the next best investment/etc. For the first time in a long time many are paying serious attention to the advice to build an emergency savings fund, maintain adequate insurance coverage, etc," observes Joel J. Ohman, CFP.
Robert Jackson, CFP, President of Jackson Financial Advisors, adds, “Just like the depression created ingrained fears in older generations, this current ‘great recession’ has affected younger people, who now are inclined to be more conservative.”
However, Steve Siebold, author of "How Rich People Think," says he hopes people will change their thinking about money in 2011. He says we need to stop looking at money from a fear and scarcity mindset and start looking from a consciousness of freedom, possibility and abundance. He also urges people to look at money from logic rather than emotion.
Similarly, prosperity expert Randy Gage offers this tip for creating a "prosperity mindset" in 2011: “[Expand] your vision of what can be for you. Abundant people see opportunity. They expect good things.”
Safety vs Risk
John Murphy, an investment representative for Financial Network Investment Corp in Maytown, Pennsylvania, points out a continuing trend of paying down home equity lines as well as primary mortgage debt, “even if these loans are at relatively low rates (3.5 percent to 5 percent). Many times you will see money taken out of portfolios earning well above this to reduce or wipe out the loans. This gives investors peace of mind because no matter what happens to the stock market, they have a house that is paid for. With the market having recovered as much as it has, investors are happy to be selling from a position of strength and not weakness. (Many have also resolved to refinance their homes in the new year to take advantage of the attractive mortgage terms, says Charles B. Crawford, Jr. president, CEO and chairman of Private Bank of Buckhead in Atlanta.)
However, Nancy Skeans cautions not to let fear guide investment decisions in the new year.
“No one wants to see their portfolio go down in value, but [investors] must understand that markets fluctuate daily in price. Many investors rushed back to the sidelines in mid-2010 when the market significantly corrected due to fears over European debt problems and a weak U.S. recovery. Although both issues are still present (although the news looks less dire), individuals who got out in July missed a rapid market recover,” Skeans says.
And Pete D'Arruda recommends having an exit strategy. “Before you get into anything you better know the target price you are going to get out of it.”
White House Resolutions
Americans also have ideas about what the White House should do in the year to come. When Allianz conducted their annual New Year’s Resolution survey, half thought that creating jobs and reducing unemployment should top priority. Fixing the country’s finances came in second, with 35 percent choosing that option.