Getting Clear on Resolutions

As 1996 begins fresh, millions of Americans have toasted the year gone by and are wishing for prosperity and good fortune in the year to come.

Now it’s time to take steps to make those wishes come true.

The best strategies vary by your needs, but nearly anyone could benefit from a handful of financial resolutions to make you more prosperous in 1996 and in the years to follow.

* Set goals

Too often people get so busy with the myriad details of daily living that they forget to contemplate the future. They know they have long-term goals, but instead of spending time to evaluate precisely what they are, they subscribe to the notion that they have the same long-term goals as everyone else--a bigger house, a nicer car, a fat retirement account.

But your goals could be vastly different. You may, in fact, be willing to do without a lot of possessions, in exchange for having more time to spend with your young family--or to become more financially independent in general. Resolve to spend an hour alone--or with the members of your family--talking about what is important to you and how you can structure your finances to get it.

* Give up or cut back one little luxury

Feeding long-term goals requires deferring a few of today’s pleasures. Settle on one small but regular luxury and cut it out or cut it back. For instance, if you buy $2 worth of coffee, sodas and junk food each day, vow to cut the expense down to an average of $1 a day. If you spend $5 to $10 on lunch everyday, vow to bring a sack lunch twice a week. Your vice is dinners at expensive restaurants? Resolve to go out one less time each month.

* Save your savings

Sign up now for some type of automatic savings program, either through a 401(k), bank or mutual fund and contribute the amount you’ll save on luxuries each month. For example, if you give up dining out once a month, at an estimated cost of $50, save the $50. If you replace two restaurant lunches that cost roughly $10 each with a sack lunch each week, figure your savings will amount to about $16 per week (sack lunches cost something, just less) or $64 a month. Do that for a year, and your savings account grows to $768. Do it for 20 years, earning an average of 8% a year on your savings, and you’ll have nearly $38,000.

* Check your credit

TRW, one of the nation’s biggest credit reporting companies, allows anyone who asks to get a free copy of their credit report each year. You can review your report and correct inaccuracies by simply highlighting any mistakes, and writing why the information is inaccurate right on the report. It takes all of 15 minutes, but it can save you from the cost and inconvenience of being turned down for a home mortgage, credit card or auto loan because of a simple mistake. If there are no mistakes, the report simply gives you a valuable picture of your outstanding debts. That can help you plan for the future.

To request a free report, send a request to TRW-Complimentary Report, P.O. Box 8030, Layton, OH 84041-8030. Be sure your letter includes your full name; current address (and past address if you’ve moved in the last five years); your Social Security number; date of birth; spouse’s name, if married; and verification of your current address, such as a copy of your driver’s license or a utility bill.

* Pay extra against credit card debts

It’s tempting to just pay the minimum required payments when credit card bills start rolling in after the holidays, but if you do, you’ll spend hundreds--even thousands--more than you would if you paid a few dollars extra each month. Pay $10 more each month on an $1,700 debt at 18% interest, for example, and you’ll save $1,319 in interest and you’ll pay off the bill 10 years faster.

* Pay attention to taxes--all year long

Taxes are now the average American family’s biggest annual expenditure. But most people don’t think about them until it’s nearly time to file their annual return. You can reduce your tax bite by being more organized and thoughtful during the year. How? Buy a large envelope, write “tax records” on the outside, and fill it with receipts for every tax-deductible expense or charitable contribution you make during the year, no matter whether it’s clothing or cash. Be sure to include the value of donated items, the charity’s name and its tax-exempt status. If you try to assemble these records at the end of the year, there’s a good chance you’ll forget something. For every $100 in deductions you miss, you throw away about $40. It’s also not a bad idea to talk to a tax specialist early in the year, and ask about tax-saving strategies that you can start now.

* Check your life and health insurance

If you started a family--or if your family is older and more independent since you last reviewed your life and health insurance--look at your policies again to see if they provide adequate--or too much--protection. Remember that as your children grow older and you accumulate more assets, your need for life insurance diminishes. Meanwhile, marriages and births increase both life and health insurance needs.

* Review homeowners and auto policies

If you haven’t done it in a while, you should take a look at your property insurance to make sure that the coverage amounts are adequate, the deductibles are appropriate and the rates are reasonable when compared with similar policies offered by other insurers. Having too low a limit on your homeowner’s policy can cost you a fortune in a disaster. Meanwhile, low deductibles--the amount you pay before the insurance company compensates you for a loss--can cost a pretty penny in premiums. Meanwhile, shopping around is always the best way to find a bargain. Do all three once every few years, and there’s a good chance you’ll save money and get better coverage, too.

* Review your investment portfolio

1995 was a great year for investors. But don’t just rest on your laurels. If you are invested in mutual funds, take a look at how your funds have performed relative to their peers and whether you’d be better off elsewhere. Check how your assets are allocated, and consider whether you should shift money into new categories, putting a greater percentage of your savings in overseas markets, for example. If everything looks good, and suits your investment goals, leave it alone. If not, make a few changes.

* Invest in yourself

Today’s work environment is changing so rapidly that many management gurus believe the key to keeping competitive is to constantly update your skills. If you think your career would benefit from additional education or training, resolve to make the time to get it. Remember that you are your biggest financial asset. Take care of your earning power.

Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message kristof@news.latimes.com on the Internet.