Personal Finance Resolutions for 2010
If your goal is to get your finances real estate ready in 2010, you could be in for a wild ride, depending on how the recession affected your job, home and investments.
If you currently have a mortgage but are "under water" with your loan (i.e., your house is worth less than the amount you owe), you may need to boost your savings in order to qualify for a loan modification or a refinance.
In a previous column (New Year's Resolutions for Home Buyers), I recommended putting yourself on a budget, trading down each of your expenses to a less expensive alternative, paying off your charge cards, and paying yourself first and last as a way of building up your cash reserves for a down payment and closing costs.
But there are other ways to reorganize your personal finances, especially if you've experienced a foreclosure, short sale or bankruptcy first-hand.
Focusing on building up your credit history and raising your credit score is paramount. But you'll also need to set aside cash to cover the required down payment (which will increase next year, for the second year in a row, on FHA loans), build up cash reserves, and pay for some closing costs and moving expenses. You can expect mortgage insurance premiums to rise as well.
It's going to take some work, but you can improve your personal finances. Here's the second half of my annual list of Personal Finance Resolutions you ought to make for 2010:
Pay all of your bills on time
Whether you're renting an apartment or own your home, this is a key rule to live by, especially if you're trying to re-establish your credit history after a financial crisis.
While the credit rebuilding process can take years, paying bills on time helps to show a pattern of progress. Late payments show that you're not managing money well, and even a single late payment can drop your credit score by 50 to 100 points.
If you filed for bankruptcy, went into foreclosure, or did a short sale on your home, your credit score might have taken a 150-point hit. Paying your bills on time is the best way to start fixing the damage.
Save your change
Every day when you get home, empty your pockets (or wallet) of change into a glass jar. After two weeks, drop the change and your lowest denomination bill into the jar. At the end of a month or two, take it to the bank. You'll be shocked by how much you'll save and how you'll never miss it in your daily routine.
Contribute the maximum to your retirement plan
Last December, I
wrote that the financial markets were down 45 percent from their high of
The market may bounce around (in fact, I expect it will), which will leave stomachs churning. Still, take advantage of these tax-deductible, tax-deferred investing opportunities. If your employer doesn't offer a 401(k) plan, and you qualify for a Roth IRA, you should open it up and start putting away money for your retirement. If your employer offers a Roth 401(k), you should invest as much as you can there as well.
Think about the tax consequences before you make a decision
sold your personal residence in a short sale, there are
But, if you sold an investment property in a short sale, you may have to pay taxes on that "phantom income." The same thing is true if you got your credit card company to take less than you owed on your credit cards.
Bottom line: Before you agree to pay off a debt for less than you owe, think about the tax consequences.
Resist the temptation to use your 401(k) or IRA as a piggy bank
The cash you've saved in your 401(k) or IRA should only be touched as a last resort -- but that's a place plenty of Americans got to this year.
The government allows you to withdraw up to
Whether or not you can borrow any amount from your 401(k) or other retirement plan at work depends on the plan rules (check with your plan administrator).
Either way, carefully think it through before you take the cash from
these accounts. If the
Consider refinancing or a loan modification when interest rates drop or when your credit improves
We started 2009 with mortgage interest rates a little over 5 percent. We ended the year with 30-year rates under 5 percent. Twice during the year, mortgage interest rates touched a 50-year low.
What's going on? The Federal government is spending big bucks
essentially to buy down the interest rates. How much? By the time the
program is over, around
But the party might be almost over. The government says the program will end in the first quarter of 2010, and after that, interest rates will likely rise to somewhere between 6 and 7 percent. Fannie Mae has just instituted tougher underwriting guidelines that will prohibit buyers with a high amount of debt from getting a loan. If you're going to refinance, sooner is much cheaper than later.
Don't expect your savings to grow overnight, but if you start to implement a few of these strategies, by this time next year, you'll notice a significant improvement in your financial net worth.
- Generation Y: Save for a House or Retirement
- Retirement Benefits: What to Expect in 2010
- Personal Finance Resolutions for 2010
- The War Against the Wannabe Rich
- Make Budgeting a New Year's Resolution
- The Over-indulgent Self-Centered Generation
- Personal Finance Predictions for 2010
- New Credit-Card Rules Add Accountability
- Are International Investments Still Good Plays
- Google Remains Powerful Brand
- New Economic, Market Trends Merit New Approach to Once Shunned Investments
- 10 Things to Know About Real Estate in 2010
- The Gift of Savings
- Break Bad Shopping Habits to Avoid a Debt Hangover
- Understanding Health Reform's Real Impact on Medicare
- Ready for Retirement
- Should Your Kids Pay for College Themselves
Personal Finance Resolutions for 2010 | Personal Finance and Real Estate
(c) 2010 Ilyce Glink