Today is as good a time as any to make new financial goals. As with any life-changing goal, the first things you have to do are learn from the past and then focus on the future. When we say learn from the past, we don’t mean punish yourself for past mistakes but rather use those mistakes as a way to make better decisions going forward. Forgive yourself and your spouse or partner (if you have one) for what has happened previously and agree that from today forward, you will concentrate on developing better financial habits. And your spouse or partner must do the same for you. Whatever choices you wish you had made in the past, don’t dwell on regretting them but learn from them as you make new choices in the future. By leaving the past behind, you will feel a great burden lifted off your shoulders, it will be easier to breathe, and you can look forward with anticipation to the good things to come.
It’s true that before you know where you’re going, you have to know where you’re starting from so create a quick view for yourself of what your finances look like today. Make a list of all the financial statements that you make payments on every month credit cards, store cards, auto loan, house payment, etc. Decide where you need to focus first and outline your monthly plan for meeting your new expectations.
Concentrate on the things you can control. Like your credit cards. With all the talk in the recent past about stock market slumps and mortgage failures, you may feel like you don’t know what to do for the best. Keep in mind that those things are, unfortunately, out of your control. Don’t waste your energy there. If you focus on paying down your credit cards, you can see the rewards of your efforts every month. Review your credit card statements for the past six months. Is there a $50 or $100 purchase somewhere that you could easily have done without? Avoid making such purchases in the future.
One of the consequences of the financial crisis of 2008 is that banks are going to be a lot less eager to lend money. What that means for you is that if you hope to buy a home or a car in the near future, you will need to have an excellent credit rating, including a credit score above 700, established regular income, and a manageable amount of existing debt, i.e., balances below 50% of the available credit on your credit cards or credit lines and with no late payments. Financial institutions will no longer be willing to offer credit the way they did for the several years before 2008. If your score is below 700, two of the best ways to improve it are to pay your bills on time and push yourself to reduce your credit card balances.
If you have a 401(k) or Roth IRA that lost value in 2008, don’t be worried. In fact, that’s actually a good sign. It means that your plan has you invested in stocks, which, if your retirement is ten or more years away, is just where your money should be invested. While investing in stocks sounds risky and intimidating, stocks are also your best chance for a return on your investment that grows faster than inflation. Rather than running the risk of trying to navigate the stock market yourself, a 401(k) or Roth IRA account offers you the benefit of expert investment. And instead of worrying when your account value drops, keep in mind that your money is buying more shares of your 401(k) or Roth fund so that you will make more when the market recovers. Take advantage of the advice available from your plan manager when deciding where the best place is for you to focus your investment.
If you are buying a home and you are still able to make your mortgage payment, you should feel very lucky. It may not be the dream home you fantasize about, but try to love your home for what it is. Too many Americans think of their home as an investment and buy based on what they think the value will be in five or ten years. This is the wrong way to buy a home. A home purchase should be based on whether or not this is a place you can live happily, not to be thought of as an investment that will fund your retirement or vacations. Buy a house you can really afford, and over time it will rise in value because that’s what the housing market does. But its main value is as your home.
If you take control of these main areas then no matter what the future brings, you will have control of your financial destiny. And nothing will bring you more peace of mind than that.