Have you made your New Year's resolutions yet?
Planning to lose 10 pounds by Valentine's Day? Promising to donate one hour a week to your favorite charity? Good for you. But what about your financial resolutions?
In case you haven't made any resolutions yet, here are a few suggestions we think should be at the top of your list.
Beef Up Your 401(k) Payment
Look at your last pay stub for 2000. What was the grand total of your 401(k) contributions for the year? If the total was less than $10,500, you cheated yourself. Remember, you are allowed to contribute pretax dollars from your paycheck to your retirement. Uncle Sam caps this generosity at $10,500 per year. The good news is that this money grows tax-deferred until you're ready to withdraw it in retirement. Consider this $10,500 a freebie and take full advantage of it.
Here's a quick way to determine how much you should be contributing. If you get paid twice a month, you can contribute roughly $438 a pay period. So divide $438 by your gross salary per pay period and that's the percentage you should be contributing from each paycheck. Just be sure to check your company's plan to ensure there are no limitations on the percentage you can contribute.
For more on why you should care about your 401(k), check out this recent
Clear Your Books
We all have debt. But if you have margin debt, get rid of it ASAP. Margin debt is created when investors take out loans from their brokers to buy more securities. Their current portfolio is used as collateral.
If the stock you purchased on margin rockets, you make a bundle and you easily pay back your loan.
If the market slips, the value of the securities in your portfolio may, too. But those securities are part of your collateral. If their value falls below a minimum level -- typically 50% of the borrowed funds, although firms can require more -- the account may no longer be enough to guarantee your loan. Then you may get a dreaded margin call, where your broker requires you to bring your account back up to the required levels by either depositing additional funds or securities into the account or making full payment on your margin loan.
If, by the grace of God, you did not get a margin call this past year but you still have margin debt, don't tempt fate again. Get rid of it! Many pundits are predicting another ugly year, so clean up your account now.
For more details on the current state of margin debt, see
Pay off your credit card bills, too. There is no need to be straddling those outrageous interest rates.
And while you're at it, get a copy of your credit report. If you haven't seen it in a while, you may be surprised at all the junk that's accumulated on it. For details on how to obtain your credit report, see our
five-part series on credit reports.
Set Up Your Las Vegas Fund
While I have said numerous times that your portfolio should be properly
diversified and that you should understand the
fundamentals of the companies you invest in, I don't want you to be totally averse to risk.
There may be some opportunities that you'll want to take a chance on but you don't want to risk money from your core portfolio. So create a separate "Las Vegas" account. This is your play money. Your financial well-being should not be altered if your lose it. Keep it funded so that you always have some cash readily available to either buy more of your favorite when it's taking a dip or to invest in that hot new wireless company.
With your Las Vegas account funded, you'll never have to sell any of your skillfully selected core portfolio holdings to take a risk.
Stop Watching CNBC and Start Reading Shakespeare
Get the noise out of your life. Stop obsessing on how your holdings did this hour. It's one thing to be informed, but if this influx of information continually makes you sick, then shut it off. Unless this is your livelihood, you generally just enjoy watching or you're tracking the "play money" portion of your portfolio, don't obsess. Consider watching only in the morning as you get dressed for work and at night as you make dinner. That's it.
Stop checking your shares' prices all day long at work, too. You're giving yourself an ulcer and you're hampering your productivity.
So read a book. Look up a new recipe. Spend your free moments doing the things that make you happy.
Let the Web help you get organized.
Learn to bank online. The system will keep track of your transactions and balance your checkbook for you -- every day. What could be better! I have been banking online with
for almost two years now and it totally has simplified my life.
And if you don't already, report your trades in a software system. Use
or create your own
spreadsheet. For other suggestions, see this previous
story. Not only will this help you track your trading activity but this organization will help you next tax season.
These are just some of the pledges we think you should be committing to in 2001. Got any other suggestions? Send them on to
email@example.com and we'll share them with your fellow readers.
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TSC Investor Forum aims to provide general investment information. It cannot and does not attempt to provide individual advice. All readers are urged to consult with a professional as needed about their individual circumstances.