17-25 Organize
Not everyone is born with the neatness gene. But it can be a learned behavior, and the result is more time, space, and energy to devote to the important things in life. Getting your finances under control, maintaining better files, kicking the clutter habit for good--these are hard steps to take, but the rewards are enormous.
17. Fix your finances
Every year, we vow to improve our finances, just as we resolve to lose weight and get healthy.
Yeah, right.
Increasing your financial fitness is a lot more difficult than shedding a few pounds. But there are little things you can do to stay true to your plans. Call it the Ron Popeil school of personal finance: the "set it and forget it" method. "How do we pay our taxes, for the most part?" asks Columbus, Ohio-based financial planner Peggy Ruhlin. "Automatically," either through payroll deduction when it comes to income taxes or at the registers when it comes to sales taxes. "How do we put money into the Social Security system? Automatically."
Let's start with savings. Studies show that about 6 in 10 workers are currently saving for retirement. Yet most nonsavers can afford to sock away $20 a week. Even those who are already saving say they can afford to set aside an additional $20 a week. If you were to save $20 a week for 30 years, earning a modest 5 percent each year, you'd amass nearly $73,000.
Look, Ma, no hands! Setting your savings on autopilot can help you stay disciplined. For example, employer-sponsored 401(k)'s are a great way of automatically putting away, say, 5 to 10 percent of your pretax salary. Many parents can set up automatic payroll deductions into a 529 college savings account. Or they can sign up for an automatic savings plan with a mutual fund company or bank.
When it comes to investing, academic research clearly shows that the most important decision is determining what percentage of your portfolio should be invested in stocks versus bonds versus cash. Yet most investors spend most of their time trying to pick the hot stock or fund. "I don't think I've ever met a prospective client who's ever had an asset allocation plan," says Ruhlin. Here, too, you can put your plan on autopilot. In recent years, a slew of new mutual funds have popped up that make this decision for you. So-called asset allocation funds are offered by most of the major fund companies and 401(k) plans.
Asset allocation is only half the battle. At least once a year, you'll have to reset it. Why? Say you start out with a fifty-fifty stock-bond portfolio. And say that stocks lose 20 percent of their value but bonds gain 10 percent. Your portfolio would become 42 percent stocks/58 percent bonds, which could be too conservative for your needs. Asset allocation funds can bring you back into balance.
Plan. Beyond your investment portfolio, a fundamental step that all households should undertake is to create an overall financial plan, including a detailed budget. Can't commit to that? There is a slightly simpler alternative, says Patti Brennan, president of Key Financial, a financial planning firm in West Chester, Pa. Just figure out what you need to set aside each month to cover your expenses. Then set a savings target--for example, to max out your 401(k)'s and IRA s. Put that savings plan on autopilot and then feel free to spend whatever's left.
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