Financial New Years Resolutions You Can Keep
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Have you ever put an old chestnut like “save more” or “spend less” on your list of New Year’s resolutions? I’ve done it, too, with results undetectable by the most precise financial calculator.
Instead, here’s a top ten list (in traditional David Letterman order) of concrete resolutions you can actually accomplish. I’m not saying they’ll be easy, but all of these are either on my list for 2010 or are resolutions I’ve successfully completed in years past. Pick a couple of favorites and go to town on them. Happy new year.
10. Make or update your will. The number one reason people don’t do this is that they believe they will never die. If you are, in fact, immortal, go ahead and skip this one. Otherwise, if you have a simple estate, you can make a will on the cheap: get Nolo’s Simple Will Book or use their Online Tool for $70 (and it’s on sale for $50 until January 7). If you have a complex estate (do you employ a chauffeur with a name like Worthington?), get a lawyer and remember the first rule of estate planning: don’t forget a little something for your personal finance columnist.
9. Set up an automatic savings plan, if you don’t already have one. Even $5 a week is a fine place to start. SmartyPig works well for this. Pick a specific goal, check your progress periodically, and don’t mess with it—except to increase the weekly allotment.
8. Get rid of useless crap. No time like the present
7. Start a business. Hmm, that sounds too ambitious. Instead, start a side project that happens to be tax-advantaged. And start small. It could be selling crafts on Etsy, any kind of shop or repair work (I sharpen knives, for example), or even freelance writing. Go legit—get your city business license and file Schedule C. Why? Even if you don’t itemize, business expenses are tax-deductible. It’s fun to get paid (even a little) for something you enjoy. And if you become un- or underemployed, having an existing side business gives you something to focus on. Which brings us to…
6. Simulate bad news. Armies and city governments run disaster simulations. You can play the home game, the financial equivalent of testing your smoke alarm. Are you doing enough to prevent an emergency or life change from becoming a financial disaster? (Oh my God, I totally sound like an insurance salesman.) This year, evaluate your insurance, your emergency fund, and your family’s plans in the event of job loss, natural disaster, death or illness, and other bad things. This will not be fun, but you know what would be less fun? Doing it during the actual emergency.
5. Plan for financial good news. Now, this is more like it! Here’s hoping you get a raise, bonus, or inheritance this year. It’s about damn time, right? (I mean, not that I’m actively hoping you get an inheritance. Unless it’s from a rich uncle you never met.) Furthermore, here’s hoping you spend some of it on fun and some of it on long-term goals. Decide now. It’ll take you five minutes. What percent of any unexpected income will you set aside for retirement or the emergency fund this year?
4. Talk to your relatives about a gift moratorium. I know, sounds like negotiating with North Korea. But if you do raise the idea, do it in the summer—far from winter holidays and not too close to anyone’s birthday—and make the terms clear (maybe children and handmade gifts are excluded from the cease-fire, say). Explain that it’s not because you don’t love getting presents, but because you’re taking charge of your financial situation and find it hard not to spend on your wonderful siblings and cousins and uncles without making a pact. Oh, if my parents are reading this, next year I’d like a stocking full of candy and a donation to my favorite charity. And a chauffeur. Kidding!
3. Look into Roth IRA conversion. As of 2010, there’s no longer an income limit for converting a traditional IRA to a Roth IRA. (If you couldn’t convert to a Roth in the past because you made over $100,000, congratulations.) Converting your traditional IRA (or an old 401k or 403b) to a Roth may or may not be the right move for you—talk to your financial adviser—but if you’re even considering it, you’ll need to think about where the money will come from to pay the tax on the conversion. Good news: you can pay the taxes over the course of two years.
2. Take a nice vacation. You’ve earned it. Just one rule: you have to pay cash, and you have to save up the cash with the vacation in mind. This year we’re taking a family vacation to Japan; we’ve been planning and saving for it since 2007. If you follow through on this resolution, do me two favors: have a great time and don’t invite me over to watch your slide show.
1. Don’t buy a house. Okay, maybe this one is just for me. Have you ever saved up for something and then realized you didn’t want it anymore? For years, my wife and I have been socking away money every month into our down payment fund. And it’s getting awfully close to our goal. Due in part to the housing collapse, however, we have completely lost interest in buying a house. So one of our resolutions for this year is to determine how to reallocate that money—probably to beef up our retirement savings and emergency fund. Although, come on, how much can a chauffeur cost? Seriously, that much? Never mind.
Matthew Amster-Burton, author of the book Hungry Monkey, writes on food and finance from his home in Seattle.
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23 Comments so far
leave a commentWhy would you not want to buy a house in this market? Seems like now would be the best time to buy.
About starting a business: you need to watch the consequences of that. First, if you become self-employed in a side business and then lose your main job, you may not qualify for unemployment benefits. It will probably take longer for the state to make a determination whether you get them. Second, if you aren’t making a profit at your side-business and just using it for deducting expenses, it’s a hobby, not a business, and the expenses are deductible only as a 2% miscellaneous itemized deduction *if* you itemize, rather than on Schedule C. You need to be making a profit in 3 of the past 5 years for it to be a business.
I can’t get started because my bank is not on the list. Please let me know how and what to do.
Thanks.
Hi Debra,
What is it exactly that you want to do? In what state do you live?
Thanks for the financial advice. I’m blogging through 10 very personal new years resolutions this year:
http://tryingagainintwentyten.wordpress.com/
I’ll continue to check out your site
.
Thanks!!
I am with you on not buying a house in 2010. My wife and I live in the Chicago market are also saving up for our first home, but right now the time just doesn’t feel right. We both agree that we would rather put that money in savings and wait until our children are of school age prior to purchasing.
Dan – iould be really wrong, but I have two houses and I just bought a REO for 187 in the Keys! This home sold for 47K in 2005, I really think now is the time to buy.
Saundra
Good points, Elissa. The three out of five years rule, however, isn’t a rule–it’s a myth. You definitely need to show the IRS clear evidence that you’re trying to make a profit, but if the 3/5 rule held, then Amazon would have been ruled “not a business” years ago.
Love #4, but buy a house!
Can anybody cite the source for “As of 2010, there’s no longer an income limit for converting a traditional IRA to a Roth IRA.”
I earn too much to contribute to a Roth IRA or deduct contributions to a Traditional IRA. Still, I have put some money into a traditional IRA. I’m trying to find out if it is possible to transfer that money from the Traditional IRA to the Roth IRA.
And would it make sense to? I already paid taxes on that money because I couldn’t deduct the contribution on the way in. My logic in wanting to send it to the Roth is so I won’t have to pay taxes again on the way out, after retirement. But if I have to pay taxes on the conversion it probably doesn’t make sense.
Thanks for the help.
From http://www.irs.gov/pub/irs-pdf/p590.pdf: “For tax years starting in 2010, the $100,000 modified AGI limit for conversions and rollovers to Roth IRAs is eliminated.” If you convert your traditional, nondeductible IRA to a Roth, you would only pay taxes on the earnings, not the original contribution. When deciding whether you should do so, consider when your tax bracket will be lower: now or in retirement. With widespread predictions that tax rates will rise in the future, many (including myself) think it’s better to pay the taxes now rather than later.
this is the best time to buy a house! the worst time to sell it. dont reallocate that money, keep it because the market could change at any moment, and so can your mind.
Anyone that advises people who can afford one to not buy a house in this market should not be listened to for advice.
This post has made me question the editors at mint by allowing such a stupid piece of ‘advice’ to be published.
If anyone can afford to buy a house, now is the time to buy it. The market is on a down, it *shouldn’t* go any further. If it moves at all it should be up in the coming years. You don’t go buying houses on the up side.
Yeah, wait until the housing market recovers so you can buy at the highest price.
righ now im trying to refinance my house i current have the 5.375 of interest rate 30 years fixed and i know is going to be hard find a better deal w/out pay thetotal closing costs and all that.the value of my mortgage is less than the value of my housebut im still tinking about it. did you think can i find some bank can give me better rate,? w/no expensive closing costs.?
Why do credit card companies make payments due on holidays? i.e. MLK day. Discover Card is going to charge me a bunch of fees.
Their system would not take my e payment today at the Discover web site.
It’s really fascinating how many people are responding angrily to the housing advice. I, for one, don’t think the author is wrong at all. With extremely high unemployment (and even more “discouraged” people who are past their benefits limits), interest rates that have nowhere to go but up, and plenty of foreclosures yet to come, it is silly to think that the upside is just over the horizon. If you know exactly where you’ll be for the next 30 years, then sure, it’s probably a good time to buy; there are decent tax benefits, and you’ll eventually pay down that mortgage. But if there is ANY uncertainty in your life – about what city you’ll live in, your job status, or anything else – you should probably think long and hard about it. The days where it was a “no-brainer” – a highly leveraged bet on an asset that was certain to double in 5 years – are long gone.
To me, the attitude in these comments – that rapidly growing house prices is “normal” and that this is just a temporary “down market” blip – seems to be indicative that prices have further to fall before people start looking at housing rationally…
I am so glad that you posted this comment and I was thinking the same thing! You could not have said it better.
EXACTLY!!!
Matthew, Amazon is a corporation, not a personal business with taxes done via Schedule C. There is a big difference.
As far as the “Don’t buy the House”, I’ll chime in as well. If you’ve been saving and waiting for the time to buy a house, now is probably about the best time to do it. Two years ago, had these same people found the right house and had the savings at the time, they would have bought. What’s different now? Prices are lower by 30% or more. Is that still overvalued? Quite possibly. However, in general people who buy homes and intend to live in them don’t do it with the objective of being able to sell for a profit. That might be a nice side benefit, and might be something the last generation or two were brainwashed to believe, but nothing more.
Just like the stock market a year ago, when the Average Joe was so shell-shocked that he pulled all his money from the market, taking his lumps, and swearing never again to invest in it, watching the stock market have historical gains, the same type of rebound is likely to occur in the housing market. It may take longer for it to happen because of the magnitude of the price of housing to begin with and tighter lending standards, but those are good things. People are finally realizing they will need to have larger savings, bigger downpayments, and more stability going forward.
The fact of the matter is that a house is not an asset that you lose use of over its life like a car – that’s never going to change. You buy the house, and you’re guaranteed to have a roof over your head. The landlord can’t throw you out, can’t raise the rent, tell you what you can or can’t do.
Is now the absolute bottom of prices in the housing market? Probably not. Are things going to fall another 50% from prices today? Extremely unlikely. Lots of people will resonate with the author on this topic because they are shell-shocked just like Average Joe was a year ago with the stock market. However, for those who have been saving and waiting, have good stable jobs, they may be making a big mistake by changing their mindset.
Further, it is well accepted that interest/mortgage rates are about as low as we’re going to see. Because of all the handouts and money printing taking place in Washington, we are going to have inflation, and interest rates are going to go up…right along with rental prices. You lock into your fixed rate mortgage today, and regardless how high interest rates go, your mortgage payment isn’t going to change. How high can interest rates go? I’m sure there are some people here who can still remember mortgage rates of 15% or higher 30 years ago. That may well be where we’re headed.
Personally, we’ve just paid off our mortgage about 2 weeks ago and the feeling couldn’t be more wonderful – never having another monthly housing payment.
The bottom line now, as it has always been, is simply whether you can really afford a house or not? People seem to have lost sight of that fact. If you can’t afford it, then don’t buy. If you can afford it, you’ve been saving, then you should feel extremely lucky that you are being given the opportunity of an incredible buyer’s market, with historically low mortgage rates, and a massive inventory of houses to choose from.
Don’t be the shell-shocked Average Joe, being paralyzed because of fear.
Good house buying guidelines for buying housing at the right price from http://patrick.net
“The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you’ll know it’s safe to buy for yourself because then rent could cover the mortgage and all expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:
annual rent / purchase price = 3% means do not buy
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy”
Re: buying a house – Do what’s right for you and your family. There’s more to the decision than just investment value.
The “can I rent it out if push came to shove” is a useful test for getting a grip on your comfort level with a purchase – here are a couple other ways to think about it (and keeping in mind that if you’re looking at buying in a NYC co-op, for example, the “rent it out” exercise will be next to meaningless if your co-op doesn’t let you sublet):
1. Immediate cashflow impacts: what’s going to save you money in some window of time meaningful for you (probably a number less than 30 years for most folks), assuming you get NO benefit from appreciation. For example, what’s your current total housing cost (rent, utilities, cost of transportation to work, etc.) versus your total housing cost as a home owner (mortgage, maintenance, utilities, cost of transportation to work, and net out your tax benefits from ownership). If you can buy at or less than what you spend on housing today, seems like that’s a pretty positive indication.
2. Cost per square foot comparison – if you’re going from renting a studio to buying a 1 BR, maybe you’re willing to spend more total dollars on housing – Are you getting reasonable value when you index the total housing cost by the size of the apartment?
3. Does the fixed-ness of the 30-year fixed mortgage mean anything for you? A little predictability is a nice thing, and if you’re a renter, you may think about the security of your tenure. If you buy, the housing portion of your budget planning is pretty much totally in your control for as long as you like – there’s no having to move because the landlord decides he’d rather rent to his cousin. Maybe knowing what your bottom line housing cost will be for-practically-ever will be particularly reassuring if you decided to change careers into a lower paying (but higher karma) field.
4. Last but not least – personal timing. Do you need the space in the next couple years? Are you able to take advantage of any first time home buyer incentive programs that are available today and may not be around later? Do you want to lock in a school district in time for preschool admission?