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New Year's resolution$
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December 29, 2000: 8:54 a.m. ET
Sure, vow to hit the gym every day in 2001. But what about your finances?
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - It's a new year, a new Millennium, and you've got another chance to make big changes in your life.
But even though you may swear off cigarettes or vow to lose 20 pounds this New Year's Eve, financial advisers say you should consider another set of resolutions to get your money and investments in better shape.
"The idea of these resolutions is to get you to a point where your money works for you," said Pat Jennerjohn, a certified financial planner from Oakland, Calif. "These are common sense, ordinary things you can do that can give you choices in your life."
 While going on a diet can be unpleasant and make you think you're depriving yourself, Jennerjohn thinks people should take a different approach to one of her favorite resolutions: Saving more.
"People need to make a resolution to stop thinking about saving as deprivation," Jennerjohn said. "It's money for the future. We look at saving as a rather grim exercise rather than realizing that it's going to bring joy to our lives later on."
That means siphoning money out of each and every paycheck into a savings account so you won't miss it. Try to set aside one-third of your paycheck – even if you need to dip into it next week to pay the rent, it gets you in the habit of saving more, she said.
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I like to call it paying yourself first. It means putting yourself as a priority.
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Barbara Steinmetz |
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But even a little bit can make a difference over time, said Barbara Steinmetz, a certified financial planner from Burlingame, Calif. For example, $50 a month turns into $600 a year. If you have trouble thinking about putting a big chunk of money aside, saving a small amount is a good first step.
"I like to call it paying yourself first," Steinmetz said. "It means putting yourself as a priority."
Saving may be even more important in 2001 because of the economic uncertainty on Wall Street. As companies warn of lower profits and layoffs start creeping up, it's crucial to keep three to six months of living expenses in cash.
 "The economy has changed," Steinmetz said. "We're going to be facing more volatility in the job arena. That can wipe you out in a heartbeat."
Another priority for 2001 should be to make your IRA contributions for the year and max out your 401(k), planners say.
You have until April 15, 2002 to make your 2001 contributions, but you shouldn't wait, Steinmetz said. Your money will be working for you in the market for 16 months if you make the contributions early in the year. If you wait until the last minute, you'll lose out on those months of potential gains.
Likewise, try to max out your 401(k). The current limit is $10,500 a year, but Congress may reintroduce a bill in January to increase the benchmark to $15,000.
 At minimum, you should invest enough in your 401(k) to get your full company match, said Steven Kaye, a certified financial planner from Watchung, N.J.
"Don't be stupid to give up free money," Kaye said. "It's a riskless tax shelter."
After that, an automatic investing account is a good idea. Many fund companies and brokerages have programs where you can invest as little as $25 a month through automatic payroll deductions.
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 FINANCIAL CHECKLIST FOR 2001
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Save more money
Make IRA contributions early
Max your 401(k)
Get out of debt
Consider automatic investing plans
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For people who want to retire at 55 or earlier, extra savings is even more important, Jennerjohn said.
"Money you don't see you won't spend," Jennerjohn said. "People who want to retire before the traditional age have got to have more than traditional retirement accounts."
One big drain on saving is debt, and financial planners universally say you should make debt reduction a big priority for 2001. If you paid for holiday presents on credit, those bills will arrive around the first of the year.
 "You bought it on sale and you end off paying more for it if you paid by credit card," Steinmetz said. "Get that debt paid off and get on with it."
Kaye said investors should also make a resolution to "ignore the noise" about what's happening on Wall Street. That means you shouldn't dump losers or put all of your money in biotechs, one of the few winners this year.
"People should make resolutions not to go for gimmicks," Kaye said.
You should also try to avoid panicking over the losses on Wall Street, and understand that diversification will help you stay the course, Kaye said. The people who weathered 2000 in spite of the losses were the ones who had their portfolios divided among large-, mid- and small-cap stocks, growth and value, and international stocks.
 You should only have to rebalance your portfolio quarterly or annually. You check whether your portfolio is still in line with your asset allocation plan. (For help with asset allocation and rebalancing, click here for CNNfn.com's latest Portfolio Rx).
"Our emotions say that when something is going up, it's great and it will always go up," Kaye said. "And when something is going down, it's bad and will always be going down. That leads people to buy high and sell low."
Jennerjohn said people should also expect smaller returns rather than the double-digit profits Wall Street has seen in recent years.
"I tell clients to expect returns of 8 percent," Jennerjohn said.
Click here to read about the year's winners and losers in mutual funds.
One last thing to keep in mind is to consider all of the resolutions you made on New Year's Eve 1999. Did you swear to give up chocolate? Did you promise yourself you'd spend more time with your kids, or clean your garage?
For most people, New Year's resolutions start with great intentions that quickly fade almost before all of the holiday lights are back in the boxes.
"Think about carrying them through," Jennerjohn said. "A lot of people make resolutions in January and by February they're gone with the wind."
"Saving and investing and being prudent about your portfolio is going to get you to the point where your money works for you," Jennerjohn added. 
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