When it comes to New Year's resolutions, more Americans are including financial goals.

This year, more than half of Americans will make New Year's resolutions affecting their financial lives.  That is an increase of 54% since 2009.

The annual Fidelity New Year Financial Resolutions Study found that although long-term financial goals are still the top financial priority of Americans, short-term goals gained significant traction among survey respondents this year.

In general, more than half (54%) of Americans said they typically consider making resolutions that affect their finances -- up from 35% who reported this in 2009. And for the third year in a row, the top three financial resolutions among those who are considering making a financial resolution for 2014 are saving more (54%), paying off debt (24%), and spending less (19%).

Among those who indicated that saving more was one of their goals for 2014, long-term financial goals continued to lead short-term goals, however the gap between the two narrowed considerably this year (53% versus 39%.) The top long-term savings goal was saving for retirement in a tax-deferred account (55%), followed by saving for college (35%) and saving for retiree health care costs (28%).

The top short-term savings goals included building an emergency fund (57%) and paying down debt (46%), while saving for luxury items, such as a boat or vehicle has dropped dramatically over the past few years from 19% in 2010 to 6% this year.

Nearly half of Americans said that ongoing uncertainty around the economy, the debt ceiling battles, and the potential of higher interest rates may deter their efforts to keep their 2014 financial resolutions; 39% of those polled believe that financial resolutions are easier to keep than other common resolutions (e.g., stop smoking, lose weight, find a new job) -- up from 28% in 2012.

Among other notable survey findings, 48% of Americans feel their taxes will be higher in 2014 as a result of the fiscal cliff tax law that was passed earlier this year.

A New Year - A New Financial You

When it comes to making New Year's resolutions, getting into good shape financially ranks right up there with losing weight and eating healthier. All three goals require discipline and planning; and, as you've no doubt experienced, it's not unusual to encounter setbacks along the way. 

Don't let losing a minor battle here or there convince you to surrender on the bigger war. You'll probably have more success if you start out taking small steps, learning from your mistakes and gaining momentum as you go. 

Here are a few suggestions for better managing your personal finances in the New Year:

The first step on the road to financial health is to create a budget you can live with. If you're new to budgeting or haven't been successful in the past, start slowly. For a few months write down every cent you spend: mortgage/rent, utilities, food, gas, medical copayments, credit cards – the works. You'll be surprised where your money goes.

At the same time, compare money coming in (income) to money going out (expenses). If you're just breaking even or losing money each month, you need to boost your income and/or aggressively trim spending (or both!). Try these strategies:

• Pay non-mortgage debt bills on time and send at least the minimum amount due. You'll avoid late fees and related interest rate increases; plus, you'll improve your credit score.
• Balance your checking account regularly and use in-network ATMs to avoid overdrafts and fees.
• If your employer offers flexible spending accounts, use them to pay health and/or dependent care expenses with pretax dollars.
• Raise insurance deductibles and shop around for better rates.

Once you start reducing expenses, use the savings to pay down debts more quickly. Try making a table of all outstanding credit card and loan balances and their corresponding interest rates. Then, each month pay the minimum amount due on each – except pay as much as possible on the account with the lowest balance. Once that one's paid off, move to the next-highest account balance and so on. This method goes against other financial planners, who recommend ranking your non-mortgage debt from highest interest rate to lowest.  By following the ‘lowest balance to higher balance’ methodology you achieve financial victory quicker – by eliminating a debt sooner – and therefore achieving emotional victory as well.

Another smart move is to have an emergency fund in case of financial upheaval (layoff, medical emergency, unexpected car repairs, etc.).  Ideally you should save enough to cover six months' of expenses, but don't be discouraged if that sounds insurmountable: Start slowly by saving a few dollars each week. You won't miss it and your little nest egg might just save you from needing an expensive short-term loan to cover an unplanned bill.

If something terrible happened to you, would your family be protected financially? Make sure you have a valid will, durable power of attorney, health care proxy and living will. Numerous books, online articles and sample forms are available if you want to draft them yourself, but you should probably review your documents with a financial advisor or attorney to avoid potential legal problems. Also, make sure you have adequate life and disability insurance, both in amount and type.

Sticking to resolutions is never easy – if it were, we'd already be doing them. But striving to improve your financial situation now will pay off big-time down the road.

Are You There Yet?

For U.S. investors, 2010 came in well above the long-term historical averages, with the broad-based Wilshire 5000 Composite Index up 17.7% on a total return (dividends and appreciation) basis. As usual, some categories did better than others, with diversified international stocks returning 7.8% and intermediate domestic bonds delivering 6.5%.

But how did your portfolio do? And more importantly, what progress did you make toward your long-term financial goals? While investment performance is important, long-term financial success depends on a lot more than what "the market" does from year to year. Below, I will walk through four key steps to help you get a handle on just how you're doing vis-à-vis the market and your financial goals.

Step 1: Benchmark your portfolio's performance
To get an idea of how your portfolio performed relative to the market, compare the benchmark return to your portfolio's actual return (if you use an investment advisor, hopefully this is all done for you). Chances are some areas of your portfolio did better than others, which is fine. It's not likely every area will do well at the same time—that's why it's critical to be well diversified across (and within) asset classes.  For instance, if in 2010 your domestic large-cap stocks did worse than your small-cap holdings, that doesn't mean you should give up on domestic large-cap. The important thing is that each part of your portfolio did well relative to its appropriate market benchmark. If that is not the case, step two will help address the performance problem.

This is also a good time to rebalance your asset allocation back to your long-term target if you didn't get around to it at year end. With the tax-law changes we've seen over the past few years, you may be able to give yourself an additional edge by being tax-smart about how you implement your asset allocation between taxable vs. tax-advantaged accounts.

Step 2: Measure the performance of individual investments
Of course, you'll want to see how each of your stocks, bonds and mutual funds performed in 2010 relative to their appropriate peer group and index.  But no matter what led you to purchase a particular stock, bond or mutual fund in the first place, you need to answer one key question: If you didn't already own it, would you purchase it today?

Step 3: Assess your personal net worth
Now let's take a look at the bigger—and more important—picture by updating your personal net worth statement. This is similar to what a business does with its balance sheet at the end of the year. Start calculating your personal net worth by totaling up all your assets (what you own, including your taxable and tax-advantaged investment accounts, your home, other property, equity in your business, etc.) and all your liabilities (what you owe).  If you did all this for 2009, you can compare how your finances performed since last year. Did your bottom-line net worth increase in 2010?  With financial statements in hand, you can see what portion came from the return on your portfolio vs. other factors, such as changes in the value of your home or other real estate, paying off debt, and so on.

Step 4: Make or update your plan
Measuring progress toward your goals is difficult, if not impossible, when you don't have a plan. Putting one in place involves assessing your current situation, identifying your goals—retirement, college, and so on—then formulating a savings and investment plan to help you reach them, as well as a distribution plan to fulfill your goals. Of course, no matter how good your plan is, it won't be of much help unless you take action.  A sound plan, properly implemented and monitored along the way, can help you achieve the ultimate goal—peace of mind—as you find the right balance between working toward your future goals, including a secure retirement, and enjoying the here and now.

Remember, measuring progress toward your goals involves much more than simply focusing on the performance of your investments.  It's a comprehensive look at your spending and saving habits, debt management, tax and estate planning, gifting and more—all within the context of the economic, financial and market environment. Remember, too, planning is not a one-time event, but an ongoing, lifelong discipline. 

Teach Your Children Well

Proverbs 22:6 instructs us “Train a child in the way he should go, and when he is old he will not depart from it”.  This holds true for all aspects of life’s lessons – including how to effectively manage personal finances. 

The Problem

The National Endowment for Financial Education (NEFE) administers personal financial literacy tests nationwide every few years.  The tests cover all areas of personal finance, including investments, debt, credit, and saving.  The most recent test was performed in 2008 and the results were quite surprising.  Of the 6,856 high school seniors given the test, the mean score was a dismal 47.5%.  The same test was given to 1,030 full-time college students and the results were somewhat higher, with a mean score of 62.2%.  Additionally, numerous studies and surveys are conducted every year by various financial institutions and consumer advocate groups.   Some of the results are startling: 

·         More college students withdraw from college due to personal debt problems than they do for academic problems.

·         31% of college students polled do not worry about debt, believing that they can pay it back once they are out of school and earning a regular paycheck.

·         More than 25% of students think it is reasonable to run up a debt to splurge on a special celebration with friends at a restaurant or to use a credit card as a way to “raise cash”

·         Less than half (46%) of students always keep records of their spending and receipts.

·         23% of students choose to ignore overdraft penalties and the prospect of months or years of paying off a debt incurred for a moment of fun.

As grim as these statistics are, it is by no means a reflection of parents not attempting to provide guidance for their children.  Nearly all parents (97%) surveyed in a recent study by Charles Schwab believe it is important to teach their teens to budget and save and invest for retirement.  A similar survey in 2008 by The Hartford Group found that 72% of parents acknowledged that they are their children’s primary source of personal finance education, although  44% admit to needing more guidance on how to best teach their children the skills necessary to become financially responsible and successful adults.  However, 16% report never talking to their children about using money wisely.  So what is a parent to do?

The Solution

One option is a program being offered this summer by Lone Star College–Kingwood called Discovery College.  Discovery College is a summer youth program that was started over 26 years ago and offers over 50 one-week courses for kids aging from 8-17 years old, including two courses in financial literacy.  “Relating With Money – Financial Literacy For Youth” is a program designed for children between the ages of 12-14.  In this class the students will learn the importance of developing personal financial skills.  This includes: identifying wants vs. needs; writing checks and balancing checkbooks; building a personal budget; and introducing investments, credit, and debt.  A class for 15-17 year olds, “Money, College, and Me”, will also be offered.  In addition to covering some of the topics discussed in “Relating With Money”, this course will expand into other areas of personal finance including insurance, taxes, estate planning, and the different types of retirement plans typical for those entering the work force.  Both courses will prepare the students for financial independence, whether going off to college, joining the military, or getting a job after graduation.

The Results

For the most part, students taking financial literacy programs produce more appealing statistics.  A 2008 study by the Charles Schwab Foundation of teens participating in any type of financial education program revealed that:

·         Those who reported learning about saving money were more likely to save regularly (72% vs. 57%), participate more often in retirement programs, make larger contributions to the program and have a much higher savings rate than others.

·         Youth who reported learning how to create and maintain a budget were more likely to report actually developing one (50% vs. 30%),

·         Teens who learned to track spending were more likely to having developed a budget (50%) vs. those who learned little or nothing (29%) and also more likely to save money to purchase something (80% vs. 60%).

Discovery College begins June 6^th and ends August 4^th.  For more information on Discovery College, including costs and dates for all courses being offered, visit their website at www.lonestar.edu/kingwood-discovery-college.htm.