According to The Federal Reserve, the wealth of Americans grew $1.2 trillion dollars during the last quarter. The bulk of the rise in assets is attributable to the stock market with stocks increasing $939 billion and mutual fund shares gaining $378 billion. The biggest depressant was the real estate sector which declined nearly $700 million dollars.
In the face of all of this positive economic news, do you feel any richer? Have the balances on your 401(k), Roth IRA, and stock portfolio increased? Have you increased the balances in your bank account and reduced the balances on your credit card accounts?
If so, then this is the perfect time to outline your plans for 2011. Here is a checklist to follow so that you can make sure that 2011 is better than 2010.
1. Don’t create any new debt.
If you want to get out of debt in 2011, then you have to attack your old debts. In order to effectively do this, make sure that you don’t take on any new debt. Make a pledge that you will not take on any new debt in 2011. Avoid enticing offers for credit. It’s only 1 year. You can easily go 365 days or 8,760 hours or 525,600 minutes without adding to your debt burden.
2. Create a get out of debt plan.
I know that you made a get out of debt plan last year and didn’t stick to it. That’s okay. This is a new year. Use any extra income that you are receiving to pay down outstanding debts. It may not seem like a lot but an extra $25/month can shave years off of your credit card debt.
3. Contribute more to your retirement plan.
Did the market crash of 2008 scare you off from adding to your 401(k)? The economy is getting better and things are improving. It’s time to start contributing to your retirement plan again. Bump your normal contribution percentage up at least 1%. Your goal is to max out your contribution amount so that you can receive the maximum contribution match and maximum tax deduction. If you have an IRA, the same rules apply minus the employer match.
4. Give yourself a raise!
Unless you are a federal employee (sorry!), you will probably be receiving a raise over the next few months. Take this raise and save it. Use your cost of living increase to bolster your emergency savings account. This money should be placed in a high yield savings account so that you have a cushion in case any financial hardship occurs.
5. Diversify your income stream.
The time of working for one company for 30 or 40 years has passed. As the past few years have shown, companies will lay off employees at the first sign of a crisis. In order to add stability to your finances, look to diversify your income outside of your primary place of employment. You can always start your own side business, become a freelancer, or create a passive income stream.
All of these steps are designed to make sure that you have a financially prosperous 2011!
Hi Mark,
Great advice. I’m doing some of the steps myself, but great to see this checklist so I can hold myself to it or improve on them. Keep up the good work!
Thanks Buck!
I’d like to know where to find a high yield savings account right now?
Is the glass half full or half empty? I feel just like the people that wright these papers. I don’t have a lot of Silver but I plan to buy more. I feel that the dollar is on it’s way down and know one is doing a thing about it. I did not go to Collage, I’m 66 years old, have three kids and working everyday on something. Did all the people in Washinton not go to school either? We ask last election to reduce our debit, I have seen only spending. I pray that things will turn around but I doubt it.
Since I’ve never been in debt and have a disability that makes it hard to keep a job, at58 what do you suggest?
Sorry to hear that. That would depend on what your goals are exactly.
I think the best advice I’ve heard in several years is to live your life as simply as you can and don’t follow what the people in your neighborhood do, such as buying new cars and expensive houses that we don’t need.
Keeping up with the Joneses will land you in the poorhouse with the Joneses.
i know this is not new advice but paying off credit cards can be RAPIDLY accelerated by making as many small payments in a month as is possible. all credit card company’s permit online payments in ANY amount. i plowed through about fifteen thou in cards a few years back by hammering the balances weekly (sometimes more) with whatever amount i could easily live without…just balance the checkbook and give the odd overage to the payment plan. if the checking account balances to $383.00…log on once a week and pay $33.00. give it a try…it took me about 19 months to zero the balances. once the balances really start to drop it becomes easier to do and i started tagging them also with the monies from rebates and such…felt great
Mike, that is new advice. It’s the first time that I have heard of a weekly payment plan to attack credit card debt. I am all for whatever method works to get you debt free.
thanks, mark your kind words are appreciated. it works like a charm…i stumbled upon it as i was learning to love paying bills online. the added benefit is that even if you are making the same dollar amount of payments in a given month the fact that two or three payments got there a bit early means that the interest was incrementally lessened, and even with no additional dollars deployed the debt gets chiseled away quicker. someone with better math skills can demonstrate the reverse compounding. it is a variation on the biweekly mortgage retirement technique that has been well advertised. it got really fun toward the end where i was even applying money i found in my pockets on laundry day to my ‘plan’.
i may have to develop my use of the theory and distribute it. right now all i know is it works and that i use credit now only for situations that make me money. i am not one of those guys who says debt is bad…just debt that doesn’t have an income element to more than offset the expense element.
You should. I have seen incremental payments applied to mortgages and even a car note( I have done that). Never to a credit card bill before though. You could call it the laundry pay plan lol.
jane, #2, there are no high yield savings vehicles right now other than assets like silver or art. and those have market risk. you might want to see a stock broker for some preferred shares or some B grade bonds…they have a remarkably low default rate. i heard a commentator remark yesterday that the banks cost of funds for deposit accounts as recently as 2007 was about 3.5%. it is now less than 1%. even i can make money with a cost of funds less than 1%!
with the massive number of worthy credits out there circling the block looking for loans, it is just a matter of time before some clever/savvy banker sees the massive opportunity for massive yield spreads over their 1 or 2% cost of funds. i may have to start my own bank.
Mark:
Contribute to your retirement plan(401K)….one caveat here, the past rules are about to change. 401K rules, currency risk, tax risk and black swan events(“never miss the opportunity a crisis presents mentality”) may cause the government to change the rules in a very short time, as we are spending as if in a dream world. So be diversified and be aware of what is going on with the national debt. It will impact you in the coming months.
About 16 months ago I put EVERYTHING into gold except my dog and my 2003 car. My net worth has increased about 60 percent.
Hahahaha! That’s a huge risk that I wouldn’t recommend but it worked out well for you.
Given the risk of high inflation – and some would suggest hyperinflation – in the next few years, wouldn’t getting out of debt be a bad thing to do? As long as the rate is fixed then wouldn’t inflation just eat it away? I’m not an expert – so correct me if I’m wrong – but in period of high inflation savers are going to get punished, while people with big fixed debts (ie. mortgages) are going to make out like bandits. So if we see inflation coming isn’t it better to use spare cash to invest in something with actual value rather than pay down debt which will get smaller on it’s own…?
This depends on the debt. Hyper inflation would mean that interest rates on credit cards and personal loans would increase dramatically. Any loan that is variable would be at risk. It is never a good idea to carry debt with any interest rate because you are actually getting a negative return on investment. What assets would you deem to have actual value during a period of high inflation? Even investing in hard assets like gold is speculation and you cannot put the majority of your portfolio in such a speculative asset.
@Mark: Well indeed, what assetts would be worth holding during high inflation? I guess property as long as you can afford any property taxes…? Not really sure what else. But holding cash would seem to be a bad idea as well so what do you do?
Sure I agree any variable rates would be bad, but if you had a fixed rate mortgage then wouldn’t that be a good thing?
I would invest in TIPS, I-bonds, and assets that are clearly tied to inflation. A fixed mortgage would beat a variable but no mortgage beats them all.
The 5 tips are a must for anyone who will make a wave in 2011. I will apply them to the letter.Thank u
I subscribe to the idea of diversifying our income stream. Like investments, we shouldn’t put all our eggs into one basket. We’ve seen countless broken homes as people depended on one source of income for livelihood – largely their job.
I couldn’t have said it better myself.