It may take a while for the dust to settle, but ever-tumultuous 2009 is coming to a close.
Signs of economic recovery - most pointedly, the third-quarter 3.5 percent gross domestic product growth - have started to emerge. And so, too, has a sense of cautious optimism.
If you, like many, are eager to move past the economic trauma of the last few years, the dawn of 2010 may be the right opportunity to assess your financial situation and determine a savings and investment strategy for the years ahead. Here are some suggestions to get you started:
• Reduce debt. If you have relied too heavily on credit to get by in the past, it's time to get out from under your debt burden. Make timely payments to avoid late fees, and pay down your credit card balances as aggressively as you can. If you are in over your head, you may qualify for a modified payment plan with reduced interest rates. Call your card company to explore your options.
• Spend less and save more. One good thing to come out of the "Great Recession" is Americans' renewed emphasis on careful spending. Choosing economy over extravagance is fashionable again. Try cutting back on nonessentials such as dining out, tabloid magazines, fancy coffee drinks, or whatever you choose. You'll be amazed at how these small expenses can add up to significant savings over time.
• Pay with cash. If paying by plastic is a catalyst for overspending and burdensome debt, put the cards away. Instead, pay by cash, check or debit card. Debit cards differ from credit cards because your purchase is paid immediately from available funds rather than by borrowing. Many debit cards will not allow you to make purchases that exceed the available funds in your checking account; however, some will. If you're prone to overdrawing, talk to your bank about enrolling in overdraft protection. But before signing up, make sure you understand the associated costs.
• Save and invest automatically. Take the pain out of saving by making it happen automatically. Use direct deposit to divert a specified amount or percentage of your paychecks into savings. Your financial institution also can help you roll money into your savings, individual retirement or money market accounts, or other savings and investment plans without any effort on your part. Monitor your statements to make sure your money is diverted where you want it to go and pat yourself on the back for investing in your future.
• Diversify. None of us has the ability to predict the inevitable ups and downs of the stock market. That's why it's important to diversify your investments. It's the best way to reduce your risk while preserving the opportunity to benefit when things are moving in the right direction. Choose from mutual funds, stocks, bonds, annuities and other investment vehicles that serve different financial objectives.
• Re-evaluate and adjust on a regular basis. Don't just sock away money and forget about it. Every six months, look at the rates of return earned on your savings and investments, consider risk, and rebalance to align with your goals.
• Get professional advice. It can be difficult to make smart decisions about your money. Family and emotional history can trigger unwise choices. Consult a professional financial adviser to review your financial situation. Assess your earnings, savings and spending and take a fresh look at ways to maximize your assets. With the benefit of professional expertise and financial modeling software, an adviser can help you take the guesswork out of asset allocation and diversification so you can achieve your financial goals.
Your focus in the new year should be on what you can do today and tomorrow to improve your situation. As you assess your personal balance sheet, commit yourself to fiscal awareness and responsibility. Taking action now will position you for a better and more stable financial future.
Paula Dougherty, CFP, ChFC, CLU, is a senior financial adviser with Dougherty & Associates, Ameriprise Financial Inc. in Springfield. She may be reached at paula.j.dougherty@ampf.com.
