Wednesday, January 2, 2008

New (Year’s) Revolutions

“You say you want a revolution,
Well ya know – we all wanna change the world.”
- The Beatles (“Revolution”)

It’s that time of year. Promises to make, promises to break. It’s a time-honored tradition – in America at least – to take stock every January and decide what needs changing. In a mostly futile attempt to break our chains of bondage, many of us tote up a list of those egregious habits we are determined to change. One of the habits we could all change is that of creating such lists every year! Resolution lists mostly serve to just add guilt to our pile of “couldas, shouldas and wouldas”. Change is hard. Research shows it takes 21 days (in a row!) to develop a new habit. In our “do it now, get it now, enjoy it now” culture, 21 days is an e-t-e-r-n-i-t-y. About the only things most of us can do 21 days in a row is eat and sleep.

So here’s my suggestion for a financial Revolution in 2008: pick one thing you want to change and work on that one thing only. Don’t get obsessed, but work on that one thing to the exclusion of anything else you may have thought about. Don’t add another item to your list until you’ve completed the first one. If it takes all year for the first one, then it takes all year. Here are some areas that you may be thinking of:

Budget – make one and follow it
Credit card debt – line ‘em up and knock ‘em down – use one of the snowball techniques* – the real key to success here is to not add to the debt
Rainy day fund – set up an account at an on-line bank and put money in – even if it’s only $5 - every payday
Retirement savings – sign up for the 401k at work; if already in, boost your contribution. If you don’t have a plan at work, set up an IRA.
Less taxing tax season – hire a tax preparer or accountant

* Option 1: pay the minimum on all balances except the smallest – when that is paid off add that payment amount to the next highest one, etc. Option 2: reverse it and pay the minimum on all balances except the largest – when that is paid off, add that payment amount to the next highest one, etc. Option 3: arrange accounts by interest rate, highest to lowest and pay off the highest rate first, then move down to the next highest rate, etc.

Once you start thinking about the financial habits you’d like to change it will be easy to come up with more ideas. PICK ONLY ONE and start your own Revolution.

Questions? kimm@sweetwaterinv.com

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