Facebook Twitter

Resolve to take stock of household finances

Uncertain times demand extra spending caution

SHARE Resolve to take stock of household finances

Welcome, 2002. Our New Year's financial resolutions are ready and waiting for you.

Despite a difficult economy and a trying job market, Americans were treated to television commercials over the recent holidays that depicted brand-new Jaguars and other luxury automobiles being given as surprise Christmas gifts to dads, moms and kids.

"We bought you a new CD player," a father in one Lexus ad said with a sly smile to his perky teenage daughter seated at the breakfast table, prompting her to look out the window at — lo and behold — a $31,000 car with a huge bow on top!

With this largesse seeming to be so commonplace I could imagine the young lady griping later that morning: "What do you mean, you old cheapskate, only ONE Christmas gift this year?"

If I were a spoilsport, I'd suggest that you resolve not to make any major purchases in the coming year without consulting other family members. Or that car companies should resolve not to make commercials featuring cheery holiday gifts of vehicles, most costing $50,000 or more, at the same time many Americans fear for their jobs and are lucky to buy any gifts at all.

But, if you really do have room in your family budget for a grab bag Jag or two, who am I to stand in your way? Go for it! The rest of us poor souls, however, should consider this a prime time to get our financial houses in order so we're ready for whatever surprises the year 2002 may bring.

Here are New Year's financial resolutions worth considering:

I will make monthly credit card payments promptly and pay off my credit card debt.

The average U.S. household is carrying a hefty debt load of $8,523, which is $400 more than a year ago, according to CardWeb.com Inc. That's a bad idea in worrisome times, especially when you can't come up with high-yielding investments to compensate for overspending on credit.

Over the past year, the average credit card rate declined from 16.49 percent to 14.38 percent. That's not much of a drop when you consider the current average rate on a one-year certificate of deposit recently tumbled to 2.16 percent, with average seven-day compound yields for taxable money-market funds falling to 1.66 percent.

Shopping around pays off. Lowest-rate standard bank cards available nationally, according to CardWeb.com, were recently Chase Manhattan PrimeCard, Hicksville, N.Y., 5 percent variable rate, $85 annual fee and 25-day grace period (1-877-882-0991); and Pulaski Bank & Trust, Little Rock, Ark., 7 percent variable rate, $35 annual fee and 25-day grace period (1-501-661-7700).

I will make a will and be sure family members are aware of family investments.

Tragic events of Sept. 11 drove home the importance of financial security, and the number of wills being drawn up has risen. A will is the basic legal document that transfers what you own to your beneficiaries, yet more than half of Americans die without one and leave the state to dictate where their money goes.

I've met many surviving spouses over the years who received an investment portfolio upon their beloved's death, but had no clue what to do with it. That made them vulnerable to hucksters and likely to mismanage the money on their own. Keep everyone, and spouses in particular, aware of family financial matters and also where important documents are kept.

I will put aside money for a rainy day, realizing industry restructuring, bankruptcy and job cuts aren't over yet.

Keep three to six months of salary set aside in case of an emergency, since we've learned that it's not always possible to spot financial trouble on the horizon. Most holiday office celebrations were austere events, indicative of a wary management mindset. Many experts don't predict a significant economic upturn until mid-2002, so the coming months must be handled with care.

I will try to take advantage of relatively low mortgage rates to buy a home if I have the financial wherewithal to do so, or will consider refinancing.

The average 30-year fixed-rate mortgage was recently 7.17 percent, which is the same as a year ago, according to Freddie Mac in Washington, D.C. That's not as good as the 6.56 percent available last Nov. 9, but it's low historically and an attractive rate environment for home-buying.

Fifty-eight percent of all mortgage activity was recently refinancings, according to the Mortgage Bankers Association, versus 37 percent a year ago and 78 percent on Nov. 9. Whether buying a home or refinancing, monitor rates and terms carefully so you're ready to make a sensible move when the time is right.

I will help my children understand money and saving, in addition to putting aside money for their educations.

A small account into which kids can put allowance money makes sense. Explain the spending process as you go to the grocery store or buy other items. The next step is an investment account. Meanwhile, build a diversified education portfolio through regular monthly payments. Your own retirement investment is important, but the recent painful year underscored the importance of caring for loved ones and thoughtfully addressing their future.

Andrew Leckey answers questions only through the column. Address questions to Andrew Leckey, "Successful Investing," P.M.B. 184, 369-B Third St., San Rafael, Calif. 94901-3581, or by e-mail at andrewinv@aol.com .