The dawn of 2014 brings with it the obligatory list of financial tips for the New Year. No magic bullets here, but sometimes the oldies are still goodies. Financial security is the culmination of many years of incremental and deliberate progress. Resolve to apply these goals over time and you will be delighted at the results.
Increase your saving. Americans are the most prosperous people on earth, but we are notoriously poor savers. Until the early 1980s, American families saved between 8 and 12 percent of their annual incomes. Today, that rate is close to 2 percent and continues to fall. Bankrate.com reports that only one fourth of the population has adequate reserves to last six months without an income, while one fourth has no savings at all. This is particularly worrisome in an era of migration away from employer-provided pensions into self-directed 401(k) plans.
Resolve to save more this year, even by just a few bucks. Try setting a goal for stashing away just a little more of each paycheck before sitting down to pay the bills. It is surprising and gratifying how quickly the habit becomes ingrained once you achieve a little success, and how much easier it becomes to say "no" to extravagant expenditures down the road.
Pay down some debt. Despite some progress following the great financial crisis, Americans on average are still swimming in debt. Households that carry a balance owe over $15,000 on their credit cards (often at absurdly high interest rates). A typical family also carries a $150,000 mortgage balance, while average student loan debt runs $32,000.
Borrowing can be a useful and productive tool used sparingly in a well-designed financial plan. But too much debt is invariably crippling, especially once the working years are over and the income has stopped. If you have not already begun, resolve this year to whack away at your outstanding balances. While it makes financial sense to knock down high-interest loans first, you might find it more satisfying to home in on a smaller account and exterminate it. Either way, set a goal to end the year with less debt than you had at the beginning. Keep it up until retirement and you will have it made.
Learn something every day. It is so easy to fall into a rut once we enter the daily grind of the workaday world. But financial security depends as much upon career advancement as upon savings and debt management. That doesn't necessarily require a burning desire to reach the corner office, but it does mean doing everything possible to be the best at every level.
Clearly an executive MBA program is not right for everyone, but most of us can find opportunities to improve our job skills. Many firms will pay for advanced training, certification programs and continuing education that benefit the employer. If they don't cover the cost, they may recognize the achievement with additional compensation. And even if no immediate reward is forthcoming, the habit of lifelong learning once acquired is far too satisfying to discard. It makes us better workers and better citizens, which invariably leads to more opportunity.
Don't take any wooden nickels. Ask your grandpa what that one means.
Here's to personal improvement in 2014. A little progress every year pays big dividends. Let's get started.
Christopher A. Hopkins, CFA, is a vice president of Barnett & Co. Advisors.