December 30, 2004  Email this  Print this
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STARTING OUT
Five Financial Resolutions for the New Year
by Erin Burt
Year after year I make a resolution to get in shape. I've bought books, tapes, and videos in hopes of devising an exercise plan that will have me looking like Jennifer Garner in a matter of weeks. I even moved into an apartment complex with a workout room so I couldn't blame my failure to get to the gym on traffic or weather. But come January 31, my tennis shoes are always buried in the back of my closet, my jogging pants still have their tags on and I'm back on the couch in front of the tube.
Most of you probably have similar results with your New Year's delusions, er, resolutions. You have the best of intentions, but seem to fall short. But here are five goals that make it easy to stay motivated (and you won't have to miss your favorite TV show). With our tips and tools, you just might meet your goals this year.
Start saving for a house
If you long for a home to call your own, make 2005 the year you stop dreaming and start acting. The beauty of this resolution is that it's easy to stay focused -- you're constantly reminded of your goal every time you write your rent check.
First, use our calculator to figure out if buying a home makes financial sense for your situation. If you think you may need to relocate to further your career or you aren't sure where you want to settle down, renting may still be your best option. (See Rent or Buy? for more information.)
But whether you're ready to move into a house now or five years down the road, you can start saving to make your dream a reality when the time is right.
Shooting for a down payment of 20% is a good idea and the only way to avoid private mortgage insurance. This insurance protects the lender, but you pay the premiums. If you default, the bank receives the pay off. So unlike the principal, which is money in your pocket, and the interest, which is tax-deductible, PMI is nothing more than an added cost.
But you'd have to shell out $36,000 if you want to put 20% down on a $180,000 mortgage, and there are also inspections, appraisals, document filing fees and other closing costs to consider. Don't panic -- you can get into a house sooner for a much more doable amount, and may even be able to finance the down payment with a "piggyback" loan to skip the PMI. See The Lowdown on No-Down Home Loans to find out how.
Once you set a savings target, now comes the hard part: Actually saving the money. But there are some steps you can take to make this easier too.
First off, resolve to pay yourself first. Don't wait until the end of the month, after all the bills are paid, to decide how much to save and how much you'll need for entertainment, dining out, etc. Guess what, savings will always get the short shrift.
If you set aside a fixed amount from your paycheck as soon as you get it, you'll stand a greater chance of reaching your goal.
Put the money into a special account reserved exclusively for your house. That way, you can easily keep track of your progress and you won't be tempted to dip into it.
If money is tight, re-evaluate your spending to see if you can cut back in some areas.
Married? Be sure your spouse is on the same page. You can split the savings responsibility, and not run into conflicts about overspending.
Spell safety F-D-I-C. Don't even think about putting your money in stocks or stock mutual funds if you think you'll spend it in the next three years. Instead, check out ING's Orange Savings Account which pays 2.35% interest or consider FDIC-insured CDs which pay higher rates but lock up your money for a set period of time.
When you're ready to buy, check out our Home Buyer's Survival Kit for information on choosing a broker, scouting properties and closing the deal.
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GETTING STARTED