Making the New Year a More Profitable One

It’s New Year’s resolution time. You’ve probably decided to lose weight. Make new friends. Improve your golf game.

This year, why not add some personal finance resolutions as well? Resolve to get your financial house in order.

Here’s a checklist of some common sense resolutions, designed to make you richer--or at least more savvy in managing your money:

- Figure out where you stand. Many people haven’t the foggiest notion of the state of their financial affairs. So they have no realistic idea how much they really need to save and earn to provide for a secure retirement, their kids’ college education or other financial goals. So make out a net-worth statement that lists what you own and what you owe. Include the value of your pension plans.

Also, do a cash-flow statement to figure out where your money goes. Get out your financial statements--canceled checks, credit card statements, bills and the like--and list how much money comes in and where it goes. If you are spending more than you are taking in, then it’s time to make a budget and control your spending.

- Make money the easy way: save. What’s the easiest (legal) way to make money? Spend less of what you already have. It’s easier to save a dollar you’ve already earned (which has already been taxed) than to earn a new one (which is going to get taxed). So eat out once a week less, or resist that temptation to buy the new suit you really don’t need anyway.

Also, get rid of what you don’t need. Do you have life insurance but no dependents? You really don’t need a policy in that case.

- Be realistic about risk. Learn from those unfortunate folks who bought high-yielding bonds at Lincoln Savings & Loan thinking they were federally insured. Any time you see an investment with higher-than-normal returns, resolve to be extra careful knowing that higher yields always mean higher risk.

- Stop giving free loans to Uncle Sam. That’s what you’re doing every year when you get a big tax refund. That money was yours, but you let the government have the use of it all year--without even paying you any interest! Isn’t it enough that you are paying taxes in the first place? This year, adjust your withholding so you don’t have such a big refund.

- Don’t be a sucker. Still have one of those 5.25% passbook savings accounts? Get a higher paying money market mutual fund or at least a certificate of deposit. You got a credit card charging you 21% interest? Cards charging much lower rates are readily available.

- Pay down credit card debts. Starting in 1991, you won’t be able to deduct any of your credit card interest payments from your taxable income.

- Cut down on excessive fees. Quit buying those mutual funds charging you a 6% or 8.5% load (sales commission). There are dozens of no-load funds that perform just as well or better, and saving those up-front charges will let more of your money work for you.

- Diversify. Is all your money in Treasury bills or certificates of deposit? If you’re still far off from retirement with a whole life of work earnings ahead of you, you can afford to be more creative and aggressive. A portfolio spread out among stocks, bonds, savings and real estate performs better in the long run.

- Think long term. You think that because the Dow Jones industrial index tumbled 190 points on Oct. 13 that the market is more volatile? How much on average did it go up or down the other days of the year? Hardly at all. Think long term, and put those short-term panics into proper perspective.

- Just say no. Next time a stranger calls you and tries to sell you on some hot new investment, hang up. That’s the best way to avoid getting ripped off in investment swindles.

Bill Sing welcomes readers’ comments and suggestions for columns but regrets that he cannot respond individually to letters and phone calls. Write to Bill Sing, Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.