Debt Free

Alright, it's 2008! Welcome to the new year, and sorry to those Rainbow and Fighting Illini fans about yesterday. Ouch!! One of the things that should be priority numero uno for the new year is to take stock of your finances. If you're one of those who like to set new year's resolutions for yourself, financial resolutions make great sense, and may have been part of your plan anyway. With that in mind, here are 3 financial year's resolutions you can set for yourself and how to achieve them.

Financial New Year's Resolution – 1 – I'll make more money this year.

This has got to be one of the most popular when it comes to financial new year's resolutions; make more money. Sounds great on paper, but in order for you to actually accomplish your goal, you have to have one; a goal that is. It's hard to achieve a goal if you have no quantifiable target to shoot for. So, that should be step number one, set your income target. Not only does this give you a psychological goal to achieve, but there are different ways to achieve your goal of making more money depending on how much more money you'd like to make.

If your goal is a 10% increase in income, you can probably achieve that by getting a raise at work, working extra hours or starting a small business on the side. If, on the other hand, you'd like to double your income, that will take a very different strategy for most people. To achieve an increase in come of that magnitude for the average person will take a specific plan (and it better be a good and thorough plan) and a Hurclean effort on your part. Even then, a doubling of your income in a single year may not be a realistic goal for you to achieve. The plan will be different for every person, depending on their situation, skill set and personal strengths. You want to formulate your plan to take advantage of your personal strengths and mitigate your weaknesses. To increase your income by 100%, unless you make very little, or no money now, you'll have 2 basic choices; start a successful business, or change careers.

Keep in mind that realistic goals are different for each individual. What may be realistic financial goals for one person may be completely out of reach for another. You should set your goals high, but be realistic. If you are one of those that responds well to personal challenges, setting your goal of a 100% increase in income may be just what you need to drive yourself to actually achieve it. If you are one who is easily discouraged, maybe a bit of restraint is in order here. You want to set your goal such that you can see the light at the end of the tunnel even if you fail to achieve it after putting forth a solid effort by the new year's end.

For those of you who think the economy is a faltering ship about to run aground, you can keep running around shouting “Woe is me”. For the rest of you, remember that there is always opportunity in any situation. It's your job to find it, and determine how best you can capitalize on it when setting your goals for this new year. A report by CNN money last year found that the number of millionaires in the U.S. (excluding equity in primary residences) is at a record 8.9 million. If you want to be one of them, it's time to saddle up and get moving.

That is the second part of your strategy to increase your income. You actually have to implement whatever plan you've set for yourself. One of the major reasons people never achieve their goals, is that they don't actually take the initiative to take the first step. Once you've initiated the process, keep at it. Persistence is the next ingredient in the recipe for financial success. For every millionaire who lucked into their fortune, I'll show you a thousand who kept at it until they reached their goal.

Financial New Year's Resolution – 2 – I'll become debt free this year.

Becoming debt free is certainly a laudable goal. Weather or not it is actually desirable is open to debate. There are two schools of thought in this area. One states that personal debt freedom is to be achieved at almost any cost. The second is more along the lines that personal debt should be managed and used as a tool to achieve financial success. Keep the interest rate on your debt low, and use it for investment to grow your wealth. For each school of though on debt, debt freedom has a different meaning. In the first it mens just what it says; you'll have no debt. In the second, your debt will be leveraged to produce investment and/or income growth. Following the second requires that you keep the interest rate on your debt lower than whatever rate of return you're achieving on your investment.

As with increasing your income, achieving debt freedom requires a concrete plan in order to ensure success. In fact, increasing your income may well be part of your plan to eliminate your debt, but to give yourself the best chance of success in this area, you should plan on debt reduction without any increase in income. Debt reduction is a matter of careful planning and fiscal restraint. Spending less than you make is vital, yet one of the most difficult parts of the process for many. In a 2005 report, Dow Jones lists poor money management as the number three cause of excessive debt, and in fact if you spend more than you make for any extended period of time, you are 100% guaranteed to end up among the indebted. Here is one of my previous posts on debt cures and how to determine if you have any of these debt warning signs you should be aware of.

Financial New Year's Resolution – 3 – I'll increase my credit score this year.

With all the troubles we've seen in the last 6 months in the credit markets, raising your credit score is more important than ever before. Your credit score is used by the financial industry as a barometer of your overall financial health, and like a life insurance company looks at your health by demanding a checkup before you get life insurance to determine their risk and your payment, your credit score will determine in some way how much you pay for, or if your get, many things in your life from cars and homes, to insurance and jobs. It's vital therefore to raise your credit score to its highest level. Reference my previous posts on common credit problems that can hurt your credit score, your credit report, and improving your credit score. Here is another technique you can use to improve your credit score. You should begin this process right away.

The point to remember when improving your credit score are:

1 – Pay your bills on time. This is huge. Late payment over 30 days have a dramatic, negative impact on your credit score. Those late payments in the past 24 months have the greatest effect on your score.

2 – Keep your credit card balances low – That will improve what the credit industry terms your “credit utilization score”, or your ratio of credit maximum to credit used.

3 – Don't close credit card accounts, pay them off. Closing an account will eliminate an account that has history, and the length of your credit history is one of the prime determining factors in your credit score.

4 – The length of your credit history is another reason to keep the number of credit cards to a minimum. The more new credit cards you get will not only tempt you to spend on credit, but more new cards will lower the average age of your credit accounts, thereby lowering the average age of your credit history, and your score.

Hopefully these can help you start off the new year on the right financial foot.