5 Areas of Focus for Your Finances in 2012

New Year's resolutions. We make them every year and they range from eating better, exercising, getting organized, going back to school, etc. Those are great things—and I support all of them—but my challenge today is for you to get serious about your finances in 2012. So, I have created the top 5 areas to help improve your financial game plan for the new year.

#1 Develop Your Personal Wealth Plan
One of my favorite quotes is from Benjamin Franklin. He said, "By failing to prepare, you are preparing to fail." The reality is that we'd rather plan our next vacation or watch television than plan our financial future. That mindset needs to change.

Where do you want to be in the next 10, 30, or 50 years? Take some time to think about this and discuss with your family. I encourage you to dream big and put your goals in writing.

Here's a quick example: "I will be completely debt free, have more than adequate savings and retirement, be in a position to leave a family legacy, and contribute significantly to charity by age 60." This is specific, measurable, and is realistically attainable with proper planning.

The next step of your Personal Wealth Plan is to create an action plan and start defining the steps required to make your long term goals a reality. Along the way you should be prepared to review, adjust, and redefine your plan, as it will inevitably change.

#2 Prioritize Your Areas of Weakness
After you've laid out your long term financial plan, there will certainly be some areas that you need to focus on first. Start slowly and don't try to fix everything all at once. The effort can get quite overwhelming, and a lot of times the reaction is to quit before you even get started. Below is a list of areas that you may want to consider focusing on first:

   •Savings and Emergency Fund
   •Debt Reduction
   •Retirement Planning
   •Insurance
   •Estate Planning
   •Children's Education
   •Housing/Mortgage
   •Charitable Giving

I suggest choosing your top 2-3 priorities and creating a focused plan to address these right away. An example would be: "This year I am going to pay an extra $300 per month towards my debts and increase my retirement plan contributions by 5%." You start with baby steps and slowly work your way toward larger long term goals.

#3 Control Non-Mortgage Debt
The average American carries about $17,000 in debt unrelated to home loans. Too much of this is simply credit card debt. I encourage you to consider paying down, paying off and possibly getting rid of some cards.

How much financial ground can you lose to plastic? Well, if you have a credit card with a $17,000 balance and 10% APR and you pay $200/month on it, it will take you approximately 12 years just to pay it off. Imagine what you could do with saving that money instead. If you have debt, come up with a plan to pay it down fast and eliminate it for good. There are some great resources online to help tackle debt, and I will have specific posts in the coming weeks to address this.

#4 Make the Most of Retirement Accounts
As pension and defined benefit plans go by the wayside, the vast majority of your retirement income is going to come from your own retirement savings. Your 401k and IRA accounts are probably going to be the biggest piece of your retirement nest egg, so be sure to make them a priority.

Here are a couple of tips:

1) Contribute at least the company match. This is free money and can significantly increase the amount that you save each year.

2) Consider Roth IRAs or Roth Conversions. These accounts can potentially allow for tax free withdrawals in retirement and are a great supplement to pre-tax accounts.

3) Review your investment allocation. Make sure your investments align with your long term objectives, and don't just buy the funds that your co-worker or neighbor say are best.

#5 Review your Estate Plan
I am amazed at how many people say that this is a priority, but have done little to nothing to prepare. Estate planning is not just for the wealthy, especially if you have young children. A proper estate plan will help avoid probate costs and time, pass on assets efficiently, and give you the peace of mind knowing that your family will be taken care of as you desire.

The five most important documents for most families are:

1) Will
2) Durable Power of Attorney
3) Health Care Power of Attorney
4) Living Will
5) Revocable Living Trust

All of these can be prepared with reasonable costs by an attorney that specializes in estate planning.

You should also keep important documents where you can easily access them. You don't want to have to hunt for items such as tax returns, wills, trusts, deeds, and insurance policies and neither should your heirs in a crisis. Resolve to organize them in a centralized place in 2012, or consider storing them in a secure online "cloud vault."

In Summary
Remember, this is just the starting point. Define a plan, set some priorities, and implement. If you need help along the way, there are plenty of resources and professionals available to get you started. I look forward to hearing plenty of success stories about people making 2012 the year they took charge of their finances.