If you are determined to have a better financial year in 2010 than you did in 2009, it would help to learn from what went wrong. The best way to provide that learning is to carefully and deliberately look back at your 2009 finance activity. This can be painful, sort of like looking in a full body mirror when you know you are overweight. (Been there!)
1. Assess and Benchmark Investment Performance. How have your retirement investments performed? How does that performance compare to industry benchmarks, such as the DJIA, S&P 500, etc.? I do this primarily using Quicken and Google Finance, where our retirement portfolios are monitored. Do you own things that are under-performing? Is it time to sell and buy something else? Ignoring these questions is a mistake in itself.
2. Critique Your Spending. Use your financial tracking/planning software to summarize your yearly spending in discrete categories. Does anything look excessive? Did you take a vacation or buy something you should not have? Did excessive spending cause you to carry a balance on a credit card? Did your outgo exceed your income? Find those unnecessary expenditures, admit to your spending mistakes, and implement a plan to correct them.
3. Confirm Your Cash Flow Priorities. Wasteful spending or buying what you cannot afford are pure spending mistakes. Even if you aren’t doing that, are you directing your free cash in the right places? Are you living paycheck to paycheck? Are you under-saving? Are you making only minimum payments on your debt (car loans, credit card balances, mortgages)? It is risky to be in that pre-retirement red zone with debt that will extend into your retirement years. Correct that mistake by directing more cash at debt and less at discretionary spending.
It is easy for me to look back and identify our money mistakes. I am a record-keeping freak. All of our finances are automated so I can find what I need with a few keystrokes. If you are not equipped with the technology to find your mistakes, you are ill-equipped to correct them. That should be your 2010 personal finance resolution – to get your finances into a reliable record-keeping system.
If you are still struggling in the paper world, I would start by looking at Mint, now owned by Intuit (the publisher of Quicken products.) It’s comprehensive, it’s easy to use, it’s web-based, and it’s free!
Start your new financial year by learning from your mistakes. Find them and crush them for a better retirement future.