YOUR MONEY: Good as goaled: a new approach

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By Chuck Jaffe | Sunday, December 23, 2007 4:25 PM CST | () comments

The folks at TD Ameritrade were the latest to confirm something I have known for years: People give up on New Year’s resolutions with alarming ease.

The TD Ameritrade study, conducted for the firm by Harris Interactive, said that among adults making resolutions, nearly

60 percent of those pledges are related to finances. More than half of those resolutions, according to the study, will be abandoned within a month, while roughly 80 percent of respondents failed to keep their resolve for a year.

That’s precisely why I eschewed resolutions about two decades ago, in favor of an unusual goal-setting process that has now become a last-week-of-the-year ritual.

Each year, I write down a list of goals, put them in an envelope and mail them to myself. The sealed, postmarked envelope stays unopened, but in a visible place — these days, it is tacked to the bulletin board above my desk — for

51 weeks, at which point I open it, assess how I have done and reset my priorities for the 12 months ahead.

I like my system better than resolutions, because concrete goals don’t evaporate in the face of adversity, hardship or laziness. Resolutions are broken — and usually abandoned — with one misstep; goals are such a long journey that bad footwork days are to be expected. There have been goals that have taken several years to accomplish, but that have been achieved over time. The envelope tacked on my board is a constant reminder that there are always things I am trying to do better and improve upon.

I never memorize my list of 30 or so items, but the ones that stick out the most in my head when I write them are never far from my thoughts. My personal list covers everything from work habits to weight, with a strong emphasis on saving and investing mixed with a few ideas for becoming a better person. A good year is one in which I nail half of my targets and get close to the bull’s-eye on about half of what is left.

There’s no denying that it’s odd, but this quirky system has helped me — and countless others who have tried it since I first wrote about it in the early 1990s — so I keep throwing it out there as the year comes to a close.

One key to achieving goals, particularly the financial ones, is to have concrete targets, with measurable numbers and progress that shows up through reasonable effort more than wishful thinking. Resolving to become rich is impossibly hard; planning to increase your net worth by 7.5 percent is realistic and, depending on your habits, possible.

JAFFE

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If you are planning to set financial goals in 2008 — or if you want to live b y the more-traditional resolution system — here are a few financial targets you might want to aim for:

n Save your next pay raise.

If you can make ends meet today, then you can use some or all of tomorrow’s pay raise to inflate an emergency fund, build your retirement plan, add to your employee stock ownership plan, or bolster your holdings in a favorite stock or mutual fund.

Your current comfort level will be unchanged — so you won’t feel deprived — but your future standard of living will improve dramatically for the effort.

If you can’t afford to save even a part of your next raise, focus your goal-setting on ways to cut spending.

n Use what you pay for.

If you can’t afford to waste money, you can’t let food rot in the fridge while you eat out, or go shopping for something new while you have a closet full of clothes that fit at home. Likewise, energy conservation adds up in time, so shutting off lights or air conditioning or heat in empty rooms will cut the bills and pay off in the end.

For people trying to live life on a budget, spending decisions should be pretty simple: Buy what you need, and use what you buy.

n Pay the bills on time.

Creditors want to be paid on time; they’d rather get a minimum paid on time than a huge payment three days late, and your credit record will reflect that. So avoid late payments at all costs; they not only hurt your credit score, but they can trigger “universal defaults” and raise your rates on other bills, even those that you pay on time.

n Manage debt by paying cash.

If you find that it’s harder to part with their dollars than to plunk down the plastic, pay cash. At the very least, you’ll stop buying things you can’t afford to pay for in a big hurry.

n Put your charge cards on ice. Literally.

If one of your goals is to reduce debt, you can start by making sure your outflows don’t increase. The extreme measure is cutting up your cards, so a more moderate position is to stick your cards in paper cups filled with water and to freeze them. Defrosting takes hours — they come out fine so long as you don’t microwave them — which forces you to think out your purchase before going to the trouble.

n Handle your chores.

Most consumers fail to review credit reports, read their Social Security statements, calculate their net worth, or make sure their insurance coverage is sufficient.

In the next 12 months, get through the basics: Update wills and estate plans, inventory your financial accounts and household items, analyze the insurance coverage, meet with a financial adviser if you need help, and more. Read your statements and make sure your credit report reflects your actions, and not those of anyone trying to steal your identity. Clean up your financial files, make sure all of your account registrations — and beneficiary designations — are correct and current.

None of these tasks is difficult, all of them tend to be among the last things that busy people make time for.

Once you finish the basic chores, be sure to complete the follow-up work. If the portfolio analysis suggests a change is necessary, rebalance your portfolio. If there are problems on the credit report, file the papers to clean them up, and so on.

n Tell the story of your investments and your philosophy now, while you can.

The bare minimum personal goal for most people is to simply make it through the coming 12 months. Alas, some people won’t make it.

In case the new year brings the most unpleasant of surprises, sit down during a quiet time and make sure your loved ones know what you think about while investing. Writing notes about your strategy and thinking will make sure your loved ones have a lasting reminder of what made you financially successful, and your heirs will have some guidance in deciding what to do with those assets in the future. Your instructions will help protect them from rogues and charlatans who might otherwise weasel their way into the life’s savings you leave behind.

n Remember that time is as valuable as money.

If you can be more efficient or stop wasting time or procrastinating to the tune of five seconds in every minute, you will save 40 minutes of extra time during an eight-hour work day. Whether you use it for work or family, that time is a priceless bonus.

n Make sure money occupies a proper place in your life.

One way to save time is by cutting down on the hours spent watching and managing your investments. That may sound like blasphemy, but it’s easy to spend every waking moment following, measuring and tinkering with your investment portfolio. Micro-managing is counterproductive; it leads to short-term moves that have bad long-term consequences. Anyone who is not independently wealthy needs to worry about money, but the best thing they can do for their money is not worry too much about it.

Chuck Jaffe is senior columnist for MarketWatch and the host of Your Money Radio (www.yourmoneyradio.com). He can be reached at cjaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070.

Copyright, 2007, MarketWatch