10 resolutions to fix your finances

By Allan Townsend

Making New Year's resolutions is easy. You've probably made hundreds. Now count how many you've actually kept.

When it comes to your money, there are 10 resolutions that you need to start working on now and can't afford to give up. The secret of success: Don't skip the first five. These goals build on each other.

Organizing your life

Resolution No. 1: Set up a system. Any system will work, but get beyond the shopping bag of receipts and shoe boxes of bank statements (see "Organize your financial life" and "9 high-tech ways to simplify your money" for ideas). Dealing correctly with that mountain of paperwork is critical for tackling the other resolutions.

Whether you buy an office-style file cabinet or dedicate a desk drawer, begin by creating these categories so important information will have a home as it comes in:

• Deductible expenses. Organize your credit card charge slips and receipts for deductible cash expenditures, paid medical bills, property tax bills and charitable contributions. Set up a separate file folder for any category in which you expect deductible expenses. (Need help determining what's deductible? Check out MSN Money's Deduction Finder.)

• Banking. This folder is for monthly statements, canceled checks and deposit receipts. At the start of the year, begin a new check register, whether there's room in the current one or not. Put last year's register in your file. If you use financial software on your computer, print out a year-to-date record. Or download the information from your online bank (see "Go paperless for safer banking").

• Investments. Each of your brokerage or mutual-fund accounts should have a separate file folder so you can organize your trade confirmations and statements. You'll need to keep a long-term record of buys and sells to help calculate taxes in the years ahead. (More about tracking this information in a moment.)

• Tax-related items. This folder will hold important papers such as W-2 and 1099 forms that you receive from brokerage firms and mutual-fund companies detailing your dividends as well as gains and losses for the year.

Doing a lot of this work on your computer using Microsoft Money (download a free trial of it), Quicken or other personal-finance software can save both time and paper. (Microsoft owns and publishes MSN Money.) But even if you computerize financial records, you'll still need to save your information for at least three years. Take a look at "Purge your financial paperwork" and "Tax records you can toss" for more details on which records you need to keep and which you don't.

One other crucial step in this process is to make copies of critical records (insurance policies, the house deed, birth certificates) and create a list of important numbers. Gather up your credit cards and list the numbers and expiration dates. List your health-care, auto-club and membership cards. Put all of the information in a safe place (see "5 ways to save your papers in a natural disaster"), just in case.

This is also a good time to do a video inventory of your home furnishings for insurance purposes. Take a videotape recorder through your house, commenting on the high-cost items. Place the tape with your other important papers.

Resolution No. 2: Bank online. Now's the perfect time to start banking online, and this will really help you cut down on paperwork. It's easy to sign up with your bank and start paying your bills online. You'll still need to keep a close eye on your account. Most security experts recommend checking it at least weekly. See "The perils of automatic bill pay." Need more motivation to switch? Read "Your paper check is a thief's best friend."

If you never go into your bank building, you'll get better savings rates with the best online banks.

Resolution No. 3: Take stock of what you own. It's easy to access your brokerage and mutual-fund accounts on the Internet. In fact, most 401(k) plans will allow an online download of your investment records. Even better, you can gather them using MSN Money's Portfolio Manager to follow your entire investment portfolio online. Top it off by seeing what kind of wealth you've built up in your home with MSN Money's Home Equity Calculator.

Time for action

Getting organized is just the start. Now you've laid the groundwork for the next step, which begins with the possibly painful process of a financial reality check.

Resolution No. 4: Get out of debt. It could be a grim way to start the year, but there is no better time than now to make a complete list of everything you owe. Write down your credit card balances, the interest rates being charged and the minimum monthly payments.

Figure out which cards (those with the highest rates) to pay off first. It may be best to dump the worst of the bunch and switch to a credit card that could help you save money.

• Talk back: What are your 2008 financial goals?

Resist the temptation to pay off your credit cards with a home-equity loan or line of credit. You'd only be trading the unsecured loan (used to charge lunch at McDonald's) to a secured loan with your house at risk if you default. And dipping into your home's equity again and again can quietly whittle away your investment. This is one of "The 3 worst money moves you can make," according to MSN Money columnist Liz Pulliam Weston. You can find better options for repaying creditors in MSN Money's Manage Debt Decision Center.

Resolution No. 5: Create a budget. Once you see what you owe, you will have little chance to pay off anything if you don't create a budget. The first step will be to diagnose your financial health. Try using MSN Money's Debt Evaluation Calculator. After getting a handle on where your money goes, see how you can reach your new goal of eliminating debt by using the "60% solution for budgeting" (which is also incorporated into Microsoft Money). Learn more about budgeting and setting financial goals, including "50 ways to trim your budget."

What about sticking to your new goals? That's the hard part. See "7 stages of lasting financial change."

Resolution No. 6: Review your 401(k) plan. Sign up if you haven't already done so. Many employers offer matching funds, and you're missing out on free money if you don't take part. Quite a few large-company plans match 50% of your contributions, up to 6% of your salary. Consider that level your minimum, and try to boost your contributions each year until you're contributing the maximum allowed. But watch out and don't make one of the "7 most common 401(k) blunders."

You have another choice in the Roth 401(k), which lets you pay the taxes now, before you invest, allowing you to withdraw the gains tax-free when you retire. It's not for everyone, so take a close look before diving in.

• Video: Regular or Roth individual retirement account?

Also review your retirement-plan allocations for the past year. That will give you guidance on whether to make any changes. Try advice sites such as FinancialEngines.com, or use MSN Money's 401(k) Quick Check, to help you decide where to put your money in the coming year.

Resolution No. 7: Check your insurance coverage. Find out if you have too little or too much. Get started fast with Money's insurance planner, which will help you assess your needs in about 15 minutes. When it comes to your homeowners policy, you may have to beef up coverage if you've added a room to your house or bought new living-room furniture. (See our Insure Your Home Decision Center.) You also should find out exactly what will be covered by your policy in the event of a disaster.

Continued: Check your estate plan

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