Find Out How to Set and Keep Realistic Financial Goals and Budgets

We are often too ambitious when setting our financial goals. Instead of resolving once and for all to get your financial house in order and reach perfect money harmony with your partner, I suggest you pounce on 4 or 5 smaller goals. Choose goals that you and your partner can agree on and that are within reach. Here are a few suggestions.

1. Identify two budget items that are out of control or out of synch with your long-term goals. Resolve to reduce spending by 20% in both categories. Pick an easy target and a tough one. On the easy side, if you're receiving 5 magazines each month, don't renew one subscription. Pick it up from the library instead. Or, if you buy a coffee and bagel every morning on your way to work, eat a bowl of cereal at home on Fridays.

Now focus on the tough category. If you're spending more and more on eating out, reverse the trend. Instead of heading for a restaurant or the drive-through window 10 times a month, cut back to one meal out during the week and one on weekends. Cook a double portion of a favorite meal on Sunday and serve the leftovers on a weeknight. Let your partner or children take responsibility for one meal a week. Or pitch in and make it a family affair. Maybe eating out isn't your problem, but you're way too generous with gifts. Or perhaps you overspend on vacations. Make sure you choose your targets with your partner or family — you'll need their support to make it work.

2. Keep track of your spending. It's hard to resolve money troubles if you don't know where the money goes. One young couple was constantly bickering about the amount spent on clothes. The husband was sure his wife was driving them to the poorhouse with her extravagance. When they finally added it all up, she was spending less than 1% of the household budget — an amount they both agreed was reasonable.

The best way to track is with a software program like Quicken. In just a few hours a month, you can enter your expenses and balance your checkbook. You will be able to review your spending, compare it to the amount budgeted and identify problem areas. If you prefer a pencil and paper method, Dome publishes a budget book, available in office supply stores for about $5. Make sure you and your partner both participate — either by alternating months or by each entering certain expenses.

3. Increase your contributions to your retirement plan by 2% of your salary. If you're currently contributing 10% to your 401(k) or 403(b) plan, bump it up to 12%. You'll only notice the difference on the first paycheck or so before it becomes just a matter of habit.

If you don't have a retirement plan at work, fund a Roth IRA this year. You're eligible to contribute $2,000 to a Roth IRA if you or your spouse has earned income, you make less than $150,000 combined ($95,000 if you're single) and you file a joint tax return, if married. Although you don't get a tax break up front (like you do with 401(k) plans), your money is tax-free when you draw it out in retirement. Fund it with automatic withdrawals from your checking account (see #4).

4. Set up an automatic savings plan. Instead of waiting until the end of the month to see if any money is left over for investments, skim some off the top at the beginning of the month. A few no-load mutual fund families like T. Rowe Price and Strong will let you get started for as little as $50 a month if the money comes directly out of your checking or savings account. TIAA-CREF offers several high quality mutual funds (again, with no commissions or "loads"). If you start with a $250 minimum initial investment, you can add as little as $25 a month. You can even fund your Roth IRA this way. All three fund families have web sites and 800 telephone numbers.

5. Start the new year with a new filing system. Instead of trying to reorganize all your old papers, grab a box or empty out a file drawer, invest in a new stack of file folders and you're on your way. My clients and I use the Homefile organizer kit, a nifty set of filing dividers for each part of your financial life: bank accounts, retirement plans, life insurance, etc. Each divider has instructions on how to set up that section and, as a bonus for you packrats, specific guidance on when to archive old files and when to throw them out old paystubs, cancelled checks and other papers. The Homefile kit ($24.95) is available at Homefile.net or by calling 1-800-695-3453.

All of these resolutions are within your reach, and just think what you can accomplish by year end. You will have squeezed out extra spending and funneled it into investments, your papers will be in order, and with the click of a mouse you can see where you've spent your money. Nice going!

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