After the champagne, confetti and noisemakers, the new year offers an opportunity to make a fresh start financially so there’s more to celebrate a year from now, according to Valley financial planning experts.
For those looking to change just one thing about their finances in 2004, the best advice would be to minimize credit card use and switch to debit cards, said Greg Lane, a certified public accountant and certified financial planner at Lane Financial in Scottsdale and Prescott.
"That may be the only way for some people do it, to only have debit cards," he said. "People still like plastic. But if you have a debit card, you’ve got to have the cash in the bank before you can spend it."
Cutting up your credit cards and paying off your credit card debt is a great goal for 2004, said Robert Cameron, a Certified Financial Planner at Cameron Financial Products in Gilbert.
"Get out of debt because you’ll have a freedom that you don’t recognize when you’re in debt, and then start saving," he said. "There’s just no peace of mind that compares to getting out of debt."
Saving a little here and there also is a good start to improving your finances, said Larry Friedrichs, a certified public accountant and Certified Financial Planner in Mesa.
"You have to stop listening to that white noise that is everywhere and you kind of have to start to look within," he said. "Look at what your world is, look at where you can save money. It’s like losing weight, it’s a day at a time, a pound at a time. If you can save those dollars by not spending them, that’s when you start to put away the money."
The first thing you should do is take an inventory of what you own and what you owe as of Dec. 31, Lane said. Then, you need to look at what you’re going to earn and what you’re going to spend in 2004, he said.
"Really what we’re talking about is net worth and net income," he said. "Then you can start figuring out what you’re going to do for 2004. It will be obvious from what you prepare."
If you’re carrying a lot of debt, your No. 1 focus should be paying that down in 2004, Lane said. If your debt is low and your income is way above expenses, you should start saving more money, either in your 401(k) retirement plan or maybe an education savings account for your children or grandchildren, he said.
Everyone should be saving at least 10 percent of their gross income, Friedrichs said. The best way to do is this through a retirement plan, he said.
"You should do that for your entire life," he said. "Even when you retire, I recommend people save some of their retirement income and put that away because you can never run out of money."
The start of the year is also a good time to focus on paying off all bad debt, which includes any debt outside of your home, education and vehicle, Friedrichs said.
It’s not painless, but if you create a strategy and stay committed to it, you can "power down" your credit card debt literally in a matter of months, Cameron said.
If you’re planning to take on additional debt in 2004 by buying a home or another significant investment, it’s important to first improve your credit scores so you can reduce your interest payments, Lane said.
"The first thing I would do is make sure your credit report accurately reflects your situation," he said. "You should be able to get a free credit report from one of the three credit reporting bureaus (Experian, TransUnion, Equifax). Maybe there’s a lot of old department store cards sitting on that account and you can eliminate those and improve your credit scores."
It’s important not to buy too much home, Friedrichs said.
"I would consider enough home to be two to two-and-ahalf times your annual earnings," he said. "If you make $50,000, you’re probably looking at $100,000 to $150,000. You might be able to take it up to three times because interest rates are so low these days."
In general, 2004 may be a good time for people to work on becoming more disciplined with their money, Lane said.
"Even in a horrible economy, it’s amazing how many people are still saving," he said. "And even in a wonderful economy, it’s amazing how many people are just not saving at all and are spending way too much."