Forget New Year's resolutions. Most people break them by February anyway. If you want to get your financial life in order this year, resolve to do just one thing each month.
If you follow this program, you'll find you've invested better, planned more effectively and saved money over the course of the year. And it should take you less than one hour of effort each month.
Here's what to do during the first half of the year:
January: Take stock
Once a year, you need to look at your investments, adding and subtracting to see which ones have gained, which have lost money and how your portfolio is performing overall. If your life and goals haven't changed much year to year and your investments have performed essentially like the market as a whole, there's little need to do anything but rebalance your portfolio. To do that, check to make sure you've got the right amount of money in each asset class -- stocks, bonds, cash, commodities, etc.
If your investments performed much better or worse than the markets in general, take a closer look at your portfolio to determine why. If you're under performing because you have poor management or high fees, it might be time to find a new fund or investment manager. If you're beating the market, make sure it's not because you're taking risks that you're uncomfortable with, such as buying stock with borrowed money.
Once you're done with the financial side of the ledger, you might want to take the advice of one of my readers, who does the same thing on a personal basis. She jots down the names of the friends that she's gained and lost over the year, as well as the experiences that she's had and those she missed.
Just as tallying her financial assets suggested when action was needed, so did her personal tally. If she lost touch with a close friend, she used this annual reminder to pick up the phone. When she found she'd alienated someone she loved, she wrote an apology. If she missed an experience -- a lunch or a trip with family members, for example -- she scheduled another.
The idea was to acknowledge that what makes life rich isn't just money. I've been following this advice for years and find that the greatest thing about this tally is that you're likely to find yourself counting your blessings, even when the financial part of the picture isn't as rosy as you'd like.
February: Deal with credit card debt
Go overboard this holiday season? By now the credit card bills probably have rolled in and you could be staring at a mountain of debt. There's no need to panic, but it is time to plan. Here are the steps:
-- Add up your minimum monthly payments to see the total amount you must pay.
-- Figure out how much more you can pay.
-- Prioritize your debts, putting the card with the highest interest rate first and the cheapest last.
-- Make the minimum payments on all the cards except the one with the highest interest. That card should get the minimum plus all the additional discretionary cash you can throw against it.
-- When the card with the highest interest is paid off, start putting your extra cash toward the one with the next highest interest until that debt is paid too.
-- Repeat until all your credit card debts are paid.
March: Prepare your taxes
Throughout January and February you probably got statements from employers, banks and brokers saying how much taxable income you'd earned or collected, and how much you paid in deductible mortgage interest. Gather those up and pull together your DMV payments (for deductible personal property taxes), your property tax bills and your credit card and charity receipts.
Gathering and organizing records will make it easier if you prepare your tax return yourself. But even if you pay someone to prepare your taxes for you, organize these records neatly. Otherwise your preparer is likely to charge by the hour while he or she organizes for you.
April: Plan your summer vacation
It's hard to focus when everything is in bloom, so make your daydreaming productive by considering where you want to go over the summer. Then start shopping travel websites to figure out what this vacation will cost you. If the desired vacation is a budget-buster, consider whether you can take a cheaper version of what you want, or whether you'd be wiser to make this your 2012 vacation and do something less expensive this year. By planning ahead -- and hopefully saving up for this extraordinary but expected expense -- you should be able to enjoy a nice trip without going into debt.
May: Shop your property insurance
Once a year you should spend a few minutes shopping around to see whether you can get a better deal on two of your biggest annual expenses -- homeowner and auto insurance premiums.
If you've had a significant lifestyle change, such as moving, having children, sending the kids to college or even getting a new dog, it makes even more sense to shop around. That's because insurers have different underwriting policies, which could make your current insurer less competitive.
The Internet makes shopping easy too, with dozens of companies including Esurance and Geico providing fully automated quotes in a matter of minutes.
June: Start a holiday account
If you started the year paying off holiday debts, now is the time to head off the 2012 debt hangover. Figure out what you expect to spend on holiday gifts in the coming year and divide by six. If you expect to spend $1,000, for example, you'll need to save $166.67 each month from now through December to do your holiday shopping without incurring debt. Set up an automatic savings plan that will drop that amount of money into a savings account before you're tempted to spend it.
Next week -- what to do from July through December.