A Few Easy Steps to Keep Those Financial Resolutions

February is the month that New Year’s resolutions -- the most common of which are to get waistlines and finances in shape -- fall apart, experts said.

“The gym is full in January, but it’s already clearing out,” said Mark Wilson, financial planner with Tarbox Equity in Newport Beach. “People decide it’s too much work and they give up.”

Financial resolutions don’t have to be difficult and complicated. There are easy ways to get finances in order, planners say, including the following:

* Write goals. Whether the goal is to lose 5 pounds or add $5,000 to emergency savings, the chance of making it happen rises exponentially when it’s written down, said Mark Brown, a financial advisor with Brown & Tedstrom in Denver. Brown suggests that the whole family get involved, because many financial goals are shared.

* Protect dependents. Although most Americans are good about buying adequate auto and homeowner’s insurance coverage, too few have contemplated their life insurance needs. But people with young children or dependent spouses need insurance to cover the financial needs of their family, if something were to happen to them, Wilson said.

How much is enough? Bob Birgen, a financial advisor with FFR Advisory in Diamond Bar, has a simple rule of thumb: Divide the wage earner’s after-tax income by a reasonable rate of return -- say 5%. The result is the amount the family would need to have invested to replace the wage earner’s income without dipping into principal.

So if you have $50,000 in annual income, divide that by 5% and you get $1 million -- and that’s the size policy you would need.

Birgen’s calculation usually results in a life insurance number that errs on the high side, he acknowledges. But term insurance policies are cheap for those who are young and have the biggest need, so there’s not much wasted. A $1-million policy might cost $500 to $1,000 annually for a 35-year-old, for instance.

Wilson advises consumers to buy “level-premium” term, which offers a fixed rate for a set period ranging from five to 30 years. That ensures that the cost of the policy won’t rise, even if the policyholder becomes sick.

Several insurance quote services operate on the Web, making it easy for consumers to compare prices. One good option: www.accuquote.com.

* Boost 401(k) contributions. The typical employee never changes the percentage of income contributed to a plan, even as income rises, experts said. And yet as income rises, the tax deductions received for 401(k) contributions become increasingly valuable, Brown said. Brown suggests that employees increase their contributions until they hit the maximum allowed -- or until they can’t afford more.

* Check your credit. Californians now have access to free credit reports by calling (877) 322-8228 or by placing their requests at the website www.annualcreditreport.com. Wilson thinks a quick check is advisable because millions of people are hit by identity theft each year, which allows the perpetrators to take out credit in the victim’s name. Often victims learn about it after their credit has been ruined by the thief, and then it can take months to correct. By checking a credit report at least once annually, consumers can spot inaccurate items and potentially head off a thief.

* Control credit cards. The best way to handle credit cards is to use them for convenience but pay them off each month, Wilson said. Those who do that never pay interest, so they don’t have to worry about the rate on their card. These individuals would be wise to secure a rebate card, which would actually pay the consumer to use it.

People who maintain a revolving balance need a low-interest card. They ought to consider taking a low-rate balance transfer offer and then keep two cards. Use one for new charges that can be easily paid off. The other should be used to lower the rate on the revolving balance. But because low-rate deals are usually temporary, try to pay more than the minimums each month so that the balance will expire before the low rate.

A good source for credit card deals is www.cardtrak.com.

* Make saving automatic. Need to build an emergency fund or save for some other goal? The easiest way to do it is to set up an automatic investment plan with a bank, broker or mutual fund, Brown said. These plans can take as little as $25 a month out of your checking account, they’re easy to set up, and once they’re going the consumer rarely misses the cash that’s building up in savings.

* Reduce the mortgage. Paying a little extra against the mortgage each month will pay off the loan faster and save thousands of dollars in interest. Few people have the tenacity to do it, so Brown suggests that homeowners accept the biweekly mortgage payment plan that’s probably offered by their lender.

These plans normally charge $100 or $200 to set up. After that, the lender automatically deducts half of the consumer’s normal monthly mortgage payment from his or her checking account every two weeks. Because there are 12 months in the year but 26 two-week periods, the program results in making one extra payment every year.

How much might that save? A $100,000 loan at 6% would be paid off in 294 months rather than 360, saving the homeowner about $24,000 in interest.

* Allocate assets. How much money to put in stocks, bonds, cash and international securities can be one of the toughest decisions investors must make, but there’s a simple formula, experts say -- subtract your age from 100, and that’s the amount you put in stocks.

Say you are 40. You would put 60% of your assets in stocks, the rest in cash and short-term bonds, Brown said. Wilson, who is a touch more aggressive, would subtract his age from 110, which would cause him to put a bit more money into stocks. Either way, the allocation isn’t perfect, but it’s also not half bad, the planners agree.

* Assign and bequeath. Even if it’s a form will from a stationery store, every parent ought to have a disposition plan for his or her assets and name legal guardians for children, Wilson said. The best option is to hire an estate planning lawyer and do it right, but those who have neither the time nor the inclination can buy a form will or purchase will- making software online.

Wilson also believes that everyone should have a durable power of attorney and a healthcare directive that allows a trusted friend or relative to make economic and medical decisions for those who are rendered incapable of making them.

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Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.