How to Find Financial Success in 2011

It’s that time again. You reflect on the past year, look at what went right and what didn’t, and vow to do better in the year ahead. Perhaps the 12-step formula from the National Foundation for Credit Counseling can help get you where you want to be.

Review your credit report. Much of your financial future depends on the contents of your credit report. Therefore, your first step should be to obtain your report, review it for accuracy and dispute any errors. Since you can access your credit report for free, there is no reason to neglect this important piece of your financial life, says Gail Cunningham, spokesperson for the NFCC. You are entitled to one free report from each of the three major credit bureaus once every 12 months.

Obtain your credit score. The three digits that comprise your credit score are a major dictator of whether or not the lender will extend credit, and at what interest rate. It is likely that you’ll have to pay to purchase your score, but it will be money well spent, she says. “Be sure you understand the range within which your score falls, as each score has it owns scale. Further, take the necessary steps to improve your score,” she adds. A high school equals a low interest rate, saving you significant money over time.

Reduce debt. If you’ve dug a deep financial hole, stop digging. Piling new debt on top of old is a red flag that you are living beyond your means. Lock up your credit cards until they’re paid in full, and meanwhile, reach out for help from a legit credit counseling agency. Delay only makes the problem worse.

Commit to save. Too many folks are great spenders and lousy savers. “Without a well-funded savings account, you are on a very slippery slope, one that becomes treacherous with the next unplanned expenses,” points out Cunningham. Put 10 percent of each take-home check into a savings account. Find extra money to dedicate to saving by putting all raises, bonuses, birthday checks, and any other windfall monies into savings. This will create a cushion that should see you through most short-term emergencies.

Get organized. Create your own personal financial center where you can instantly put your hands on your family’s financial records. Your center doesn’t have to be a fancy home office. It could be an accordion folder. “The point is that you know where everything is,” says Cunningham. Place original documents such as a will or your mortgage in a safe deposit box, and keep a copy at home.

Avoid late fees. Pay your bills as soon as you get them. This way you’ll never be late. Late fees are not only a waste of money, but put a ding on your credit report and can lower your credit score. Consider setting up online bill pay with payments large enough to cover at least the minimum amount due.

Avoid overdraft fees. Get into the habit of recording each transaction into your check register on the spot. Also take the time to balance your checkbook each week, and reconcile your bank statement each month. When you’re organized you can cut down on paying overdraft fees because you forgot to write down an ATM withdrawal.

Track spending for 30 days. Cunningham suggests everyone in the household who spends money participate. Write down every cent that is spent. At the end of the month, come together to review the spending. “This is the only way you can truly know where you’re hard earned money is going,” she adds.

Create a spending plan you can live with. Once you know where your money is going, deice how you want to better allocate it. Continue tracking with the new plan in place. Keep doing so until you find a plan that is right for your family. “Make it too strict and no one will stay on board. Make it too lenient and you won’t accomplish anything,” says Cunningham. Find the middle ground.

Take advantage of free money. Contribute the maximum to your retirement plan at work, or at least, meet the matched amount or else you’re throwing away free money. Also, inquire about the availability of Flexible Spending Accounts or Health Savings Accounts, all of which can lower your taxable income.

Do an annual insurance check up. You don’t want too much or too little insurance. Make an appointment with your provider and confirm that your coverage is exactly what you thought you were paying for. Ask for ways to lower your premiums and ask about any discounts for loyalty, good driving, and bundling of multiple policies.

Investigate refinancing your mortgage. Even though rates have been rising, historically, they are still low, potentially saving you significant money over the life of your loan. There are multiple online calculators that can help you evaluate the options. Do not extend the term of your loan, however, in order to get a lower monthly payment unless this is absolutely necessary to stay afloat.

Says Cunningham, “A new year can mean a new you, at least a new financial you. Put one of the above steps in place each month, and this time next year you’ll see the new financial you. Even better, put one tip in place each week, and you’ll be on your way to financial stability at the end of the first quarter of 2011.”

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