Financial Resolutions 2002

Mellody's Math: With contribution allowances rising in 2002 to $11,000 a year, maxing out your 401(k) can set in motion a secure and fruitful retirement. In 2000, the average American contributed $3,806 to their 401(k) plan. If you are not currently maxing out, increase your contribution as much as you can going forward. If you cannot get to the max, try to put away a little more each year than in the previous one.

The average 401(k) participant saves between 4.3 percent and 6.4 percent of their pre-tax salary in their 401(k) plan. Most employers match or add contributions to participant accounts. On average, for every dollar you contribute, employers will add 50 cents (up to 6 percent of pay). This results in an immediate 50 percent gain on your savings.

Save Your Raise. If you are fortunate enough to receive a raise this year, pretend you did not and hold your 2001 expenses steady. In so doing, your lifestyle will not change and you will be able to save more money for your future. Put this added compensation toward outstanding credit card debts or put the extra cash into your 401(k).

Mellody's Math: For example, if like most Americans, you contribute $3,806 a year to a 401(k) plan, adding another $1000 annually — about $20 a week — would grow to $535,458 after 25 years (assuming a 10% return). That is $111,410 more than if you invested only $3,806 a year.

Get Smart. Invest in your financial education. Subscribe to one financial magazine, newspaper (i.e. the Wall Street Journal or Barron's) or read one comprehensive (yet understandable!) investment book. Savvy investors do not get as easily rattled during periods of market volatility and are more knowledgeable when dealing with financial professionals. The key to this is to think of the reading material as "perishable"-the magazine or newspaper is good only for that day, week or month that it is dated. Put an expiration date on your reading and read it now because that elusive "later" date often never comes.

Bottom Fishing. Consider looking at last year's losers for some potentially rewarding investment ideas. This is the essence of buying low and selling high. For example, in 2000 the consumer cyclical sector (stocks like American Greetings, Hasbro and The New York Times) performed quite poorly, down 20 percent. In 2001, however, this same sector was up 13 percent. Similarly, avoid the so-called "hot" sectors in making investment choices for 2002. The utilities sector, for example, was up 59 percent in 2000 and down 30 percent through last Friday.

Will It. Set up a will. According to Nolo, a for-profit organization providing legal materials and guides for the public, 70 percent of the American public does not have a will. However, office supply stores and a number of sites on the Internet make it easy to purchase standard, inexpensive, legally binding will kits. In some instances, without a will, your state can control your property when you die, leaving your friends and family to undergo lengthy appeals to get it back.

Expense Reports. Know your fixed expenses. Everyone has essentials in their budgets they cannot live without. You need to be familiar with your expenses and distinguish those that are discretionary from those that are non-discretionary. For example, food, housing and transportation generally fall into the non-discretionary category.

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