Top 5 Financial Moves to Start the New Year

1.  Try a new income source

This is going to be different for everyone, as everyone has different schedules, situations, free time, etc.  Also, I don't mean you should go out and get a second job.  A second job is just a second rat race shift.  It won't stimulate your mind, and it won't make you happy.  Find something you're passionate about, or something you enjoy doing.  For example, I have been trying to sell extra items around the house on Ebay.  So far, I have absolutely enjoyed it.  I made some extra money for Christmas, and got rid of some stuff I don't need (like that exercise bike I used once in 2005).  It's also very interesting and funny to see what people will actually buy.  (I currently have huge inflatable dice listed that someone gave me as a joke gift.  I'll keep you posted...)  If you enjoy making things with your hands, try to make something that could sell at a profit.  If you enjoy writing, try starting a blog (yes, I love doing this).  Find something that isn't work to you, and see if you can turn it into income.  At the very least, you'll learn something, and you will have stimulated your mind.

2.  Open an Etrade account

I'll start this off by saying PLEASE START SMALL.  It's always dangerous to recommend   to inexperienced listeners that they should start trading stock.  My goal here is that you put some disposable income (not much to start) at stake.  If you know nothing about the market, this will force you to start paying attention. When you have a stake in something, it makes it much more interesting.  It's like horse racing.  I could care less about horse racing, unless I have money riding on it.  You'll start learning about markets, ETFs, dividends, capital gains, taxes, etc.  Now the market won't intimidate you anymore.  Don't be scared of losing either.  I lost a lot of money this year (which is why I don't blog about which stocks to buy), but that hasn't changed my mind one bit.  You don't weigh in, you don't wrestle.

3.  Open a Mint.com account

Mint.com links to all your bank accounts, credit cards, loans, mortgages, etc, to show you where you are spending your money, and what your current net worth is.  That sounds scary I'm sure, but thousands of people are using it, and it's been secure so far.

It's hard to patch a leak if you don't know where it is.  Mint.com will break all your expenses down, and show you how much you spend on groceries, eating out, bars, etc.  You'll likely be very surprised at how much you spend on certain things.  You can get started here.

4.  Opening a savings account with direct deposit

I wrote on an earlier post that your savings account should be in a different account than your checking.  This way you won't see it every time you check on your checking account online.  Hopefully that keeps you from using it to buy a new TV, upgrade to Iphone 48s, or bad investments like a autographed Tim Tebow jersey.  Set your direct deposit up so that about 5-10% of your paycheck goes into your savings, so that the money is like taxes.  What you never had, you won't miss.  Cover, and let simmer.

5.  Start a Roth IRA

I doubt most people realize how easy this is.  I'll tell you.  It's as easy as starting a new bank account online. When people want your business, they usually make the process very simple.  You can start a Roth IRA at most online stock trading sites, or at most banks.  To simplify a Roth IRA, think of it as a magic bucket that you can add a max of $5000 to each year (you can still add money under 2011 until 4/17/2012).  Once the money is in the magic bucket, you can buy stocks, bonds, mutual funds, and even a house if you have enough.  The magic is that all these things that you buy will grow TAX FREE.  That means that all your gains will not be taxed.  That includes capital gains, dividends, whatever.  The only stipulation is that you can't draw from it without penalties until you are 59.5 years old.  You can learn more on Roth IRAs here.

Of course, if you believe the world is ending in 2012, then disregard this post.  

Quitting Smoking and Not Saving For Retirement: New Year's Devotions

Imagine if you could travel into the future and see yourself 20-30 years from now.  Do you think it would change the way you live your life now?  If you saw yourself battling lung cancer, would you instantly quit smoking?  If you saw yourself with a long scar on your chest from bypass surgery, would you start to eating healthier?  If you saw yourself still working with no end in sight, would you start saving more now?  The problem with things like smoking and lack of saving for retirement is that the negative effects always seem so far away.  Your paycheck is right in front of you now; why would you want to put it away for 30 years?  Can you even imagine yourself at 60 years old?  Do you look at the 60 year old you as the actual you?  I believe that a big problem is that people consider their future selves as different people, and that your bad habits now will only effect that future you.  Or people will rely on the future you to do the hard work, such as going to the gym, or quitting smoking.  Let's try and get rid of that disconnect.

Stop waiting

I hate New Years Resolutions.  What percentage of people who make resolutions actually stick to them?  Fitness Centers must love January.  Thousands of people sign up to memberships and instantly feel better about themselves because they signed up.  Then they might workout a few times, then never cancel their membership because it's easier to get a home loan than to cancel a gym membership.  Resolutions are the Instant Gratification King.  It feels so good to draw up that list of self improvements in December, but when the moment of truth comes, most of us fall flat.  If you want to stop smoking, start TODAY.  If you want to work out more, start TODAY.  If you want to start saving for retirement, start TODAY.  Don't put it off and hope the you of the future has more will power than the you of the present.  You're the same person, so if you don't want to start saving today, you won't want to start tomorrow either.

Think about retirement ALL THE TIME

Do you remember hearing people tell you "start contributing to your 401K, and then forget about it".  I believe that you should think about retirement every single day.  I check to see if I can retire every single day.  That's no joke.  Shower, Coffee, Breakfast, Retirement Fund.  That's my morning ritual.  It helps me stay focused on my goal, keeps me up to date on the market info, and shortens the distance in my head to retirement.  If you can see the finish line in front of you, you'll run faster.  

Get used to your new income

The money that you set aside for retirement does not exist anymore. If you run into money problems, turning off your 401K is NOT an option.  Imagine that you just had you wage decrease.  It's so tempting turn it off every time you want to buy something new.  The problem is that one month turns into several, and suddenly it's been over year and you haven't saved at all.  If you're 25 years old, make $50,000/year, and contribute 10% of your income to a 401k, you should have $1.183 million by age 60 (assuming an 8% return).  If you wait until age 26 to start instead, you drop to $1.089M.  That's almost a 100k drop because of just one year.     Long story short (too late), turn on your 401k, and adjust your standard of living accordingly.  If you have trouble making ends meet, you either cut expenses, or get new income sources (legally of course).

Disconnected from future you

There is a disconnect in most people's mind about the you of the present, and the you of the future.  It's easy to forget that you are the same person, or that you'll ever get to 60 years old.  It's easy to tell yourself that something will will change between now and then, and you'll start saving, quit smoking, or win the lottery. Wake up.  Nothing is going to change until you change it.  Don't set a date, don't put it off. Turn on your company's 401K, start a Roth IRA account.  Do it right now!


Big thanks to Personal Finance Whiz for including me in his top posts of the week!