Top 10 Financial Resolutions for the New Year

With the new year just around the corner, most of us are thinking about the holidays and spending time with loved ones. And while Christmas and New Year's Eve are a time to eat, drink and be merry, reality usually sets in on New Year's Day, which leads to the traditional round of resolution-making.

So for the new year (in addition to eating better and exercising more), you might want to consider these 10 resolutions for putting your financial house in order.

1. Think Strategically About Your Money. When it comes to vacations, most people plan months ahead, carefully selecting a destination and the best way to get there. Financial decisions should involve the same type of strategic thinking. You should choose a financial "destination" and then map investment, savings, insurance and household needs to arrive as planned. People who think strategically will know if they're on track to reach their goals and when they need to adjust their plan to match their financial situations.

2. Develop Financial Relationships. It's never a good idea to make major decisions in a vacuum. Ideally, you should try to develop relationships with people who can help guide your financial well-being. Get to know them, and let them get to know you. That way, they're more likely to go the extra mile to provide the kind of personalized service that can keep your goals on track. A good accountant can help you save money. A banker can help with loans when you really need them, and a lawyer can make sure your personal affairs are in order.

3. Boost Savings, Cut Debt. Limiting debt is critical to reaching your financial goals. Therefore, it's important to keep nondeductible interest to a minimum. As you liquidate debt, you may want to direct those dollars to savings. You can also maximize your savings by contributing to company-sponsored tax-deductible savings programs such as a 401(k), a health savings account or a 529 college savings plan. You should also consider making major household purchases on a "pay-as-you-go" basis. Anytime you reduce debt, you are, in effect, giving yourself a raise.

4. Review Household Expenses and Set a Budget. Cash flow management is fundamental to financial planning. Basically, this means spending less than you earn. To do this, you should decide how much you want to save and then adjust your budget accordingly. Try tracking your expenses for three months so you know where your money is going. This way, it's easier to start making intelligent decisions about spending habits.

5. Plan Ahead for Marriage and Family. You may not have tied the knot yet, but if you do plan to marry someday, you should start planning now. For example, do you and your partner see eye-to-eye on financial matters? Do you know whether you'll use a joint checking account or separate accounts? How many children, if any, do you plan to have? How will a family change your insurance and housing needs? Financial arguments can frequently lead to divorce. By planning ahead, you can help minimize stress on your relationship.

6. Review Employment and Education Options. Too many people fail to take advantage of employee benefits, especially when it comes to retirement plans. Most companies match a portion of an employee's 401(k) contribution. Consider it "free money" or a guaranteed return on your investment. An increasing number of companies also match contributions to college and health savings accounts and provide tuition reimbursement. An advanced degree can enhance your earning potential, so find out if your company can help finance higher education.

7. Develop a Crisis Management Plan. A financial emergency usually strikes when you least expect it. The loss of a job, a change in your personal situation such as a divorce or a health crisis can quickly drain your financial reserves. The best hedge is an emergency savings account equal to at least three-and ideally, six-months of living expenses. Repay the account promptly, even if it means cutting back on other things. The goal is to avoid piling up debt-or worse, bankruptcy. A crisis management plan can provide some peace of mind and keep you moving toward your financial goals.

8. Review Insurance Needs. You can use insurance to protect your assets. Life insurance can provide a decent financial cushion in the event of a spouse's or partner's death. Therefore, it's important to regularly review your policies.

9. Leverage Your Assets. You can leverage assets to take advantage of financial opportunities. For example, if you have a low-interest mortgage, think about directing any extra cash to higher-paying investments rather than paying down the loan. A home equity loan is usually cheaper than a consumer loan, and interest is tax-deductible. If you have a brokerage account, you may want to consider using it as collateral for a loan. The interest may be lower than your investment return and conventional loan rates.

10. Manage Your Taxes. Taxes can take a huge bite out of income and capital gains, so you may want to consider the following steps:

--Maximize your and/or your spouse's 401(k) and IRA contributions.

--Consider opening a health savings account, even if you don't plan to use the money.

--If you own stock, consider selling it before the end of the year if it's generating losses.

--Think about increasing charitable contributions or setting up a trust.

These transactions can all yield tax deductions. By planning ahead and taking small steps now, you can start getting your finances in order by the start of the new year. Happy 2008!

About The Author: SAMANTHA CHANG