Get your financial resolutions back on track

You probably began 2008 with the best intentions: lose a few pounds, reduce debt, start saving for college or retirement. You may have even written New Year's resolutions and started working on them. But you get busy, unexpected expenses come up, and suddenly it's summer.

Don't despair. There's plenty of time to get back on track. Here are a few suggestions:

First, make a budget. Compare what's going out with what's coming in. If your expenses exceed your income, you'll never get ahead.

Track what you spend. For the next few months, write down every penny you spend on rent or mortgage, utilities, groceries, meals out, parking meters, allowances, gas – the works. Don't forget to add in monthly amounts for periodic bills like your car and homeowner's insurance.

Review your list for non–essentials you can trim. A $5–a–day coffee habit costs $1,800 a year; buying a $10 lunch every day will run about $2,500. You could save a fortune by brewing your own coffee and packing lunch a few days a week. Put those savings toward paying off credit cards and you'll save even more, since you'll reduce the amount of interest accrued on those loans.

A few other money–saving ideas:

• Consolidate errands to save gas
• Try generic brand groceries
• Investigate using generic drugs and ask if there's a discount for ordering multiple–month prescriptions by mail
• Raise insurance deductibles
• Pay down higher–interest credit cards first
• Balance your checking account regularly to avoid overdraft charges
• Avoid using out–of–network ATMs; take cash back on debit card purchases to avoid foreign ATM fees
• Quit smoking – a pack a day habit costs over $1,500 a year
• Weatherproof your home and buy energy-efficient appliances
• Check out books and DVDs from the library instead of buying them

 

Start saving for retirement. Now. Thanks to compound earnings (where interest earned on your savings in turn generates more earnings) the sooner you start saving, the faster your account will grow. Here's an example:

Say you're 22, earn $30,000 a year and put aside 6 percent of pay until age 65 at an 8 percent average annual rate of return. Your $77,400 investment will grow to $619,000 by 65; but wait until 32 to begin saving and you'll only accumulate $274,000 – a huge difference. If you increase the percentage of pay saved and factor in annual raises, your savings will skyrocket.

Probably the easiest and most tax–effective retirement savings method is your employer's 401(k) or similar plan. Money is deducted from your paycheck before being taxed, which lowers your taxable income and thus, your taxes. You aren't taxed until the money is withdrawn at retirement, when your taxable income and tax rate may be much lower.

Most companies match a portion of your contributions – commonly 50 percent of your first 3 percent of pay saved, or better. That's a 50 percent rate of return, so be sure to contribute at least enough to take full advantage of the match. Practical Money Skills for Life features a complete guide to 401(k) plans and other employer–provided benefits (www.practicalmoneyskills.com/learn/life_events/retirement).

If a 401(k) plan isn't available, try a Roth IRA. Although initial contributions are taxed, you'll never pay taxes on the earnings. The earlier you contribute to a Roth, the bigger your tax savings. Consult a financial professional regarding your personal situation.

You've still got several months to end the year on a high note, so start saving now.