SMART MONEY LET’S GET FISCAL

I CANT BEGIN to recall how many New Year’s resolutions I’ve made over the years. I know a lot of them had to do with getting thinner; and more than a few concerned a then-lagging love life. Although I haven’t given up on my heart or my bottom, this year I’ve decided to make some smart money resolutions. Here is some advice for the bottom line:

“First, do no harm,” said Hippocrates to the medical profession, and the same applies to financial well-being.



INVEST CAUTIOUSLY.

Don’t lose money on highly speculative or unsure “deals,” whether they are tax shelters, commodities or Broadway shows. Says Tom Sprague, vice president and chief financial officer at Pace Management Inc: “There’s too much anxiety for ’deals’ and shelters. I tell my clients not to invest just for a high one-year tax write-off. Without good economics, there will be tax liabilities a few years down the road.”

Although high risk can mean high return, it can also frequently mean high loss. If you love the theater, then fine, support it. Just don’t expect more than a “warm feeling” and a glass of champagne on opening night. In general, unless you can afford to kiss your money goodbye, avoid a walk on the wild side.



SAVE ON A REGULAR BASIS.

A savings program, of course, is the cornerstone for successful gains. Be it resolved: this will be the year you spend a few months monitoring day-to-day and monthly expenses. Once you see where the slack is, start saving, whether it means switching from imported to domestic caviar, or from Tide to generic detergent, trim your consumption by a set percentage or dollar amount. Don’t overlook saving via small changes such as using alternate long-distance telephone services, owning your own phone, shopping at off-price stores or sales, flying on reduced air fares or driving a more efficient car. Buy frequently used items in large economy sizes or at caseload discounts. Unless you’re earning more than 18 percent on your investments, lay off your credit cards. Regardless of how you do it, you’ll have to trade off a bit of your convenience of today’s standard of living for tomorrow’s security. Begin to meet goals, first for an emergency cushion and then for long-term stability. Remember, the rich live off their interest and investment income, not the salary. Set your sights on becoming at least a little bit more like them.



REVIEW YOUR INSURANCE NEEDS.

Have enough insurance to cushion medical emergencies and loss of income due to death or disability. Choose the highest deductible you can afford without jeopardizing your minimum security needs. Your monthly or annual premiums will be much lower with a high deductible. Pay special attention to disability coverage. Until you are quite old, the odds of living disabled far exceed the odds of dying. Be sure you don’t live to regret inadequate coverage.



PUT YOUR WILL IN ORDER.

For many of us, this will be the first time. According to Chuck Rice, a senior financial consultant at Pace, more than 70 percent of his clients had no will or an out-of-date one when they first consulted with him. Take charge now of what you leave behind or Uncle Sam and the Lone Star will make decisions for you.



BUILD EQUITY WITH CASH IN HAND FROM YOUR NEW COMMITMENT TO SAVINGS.

Rice suggests income-producing property: oil and gas partnerships or even a certificate of deposit (CD). Get to know what type of investments suit your lifestyle, future needs and psychology. Some of us are risk takers: We love to gamble. Some of us are “risk averse”-any chance of losing seems too great. Know thyself, and invest not only for financial return but also for psychological satisfaction and peace of mind.



UNDERSTAND YOUR INVESTMENTS. Learn the pros and cons of stocks versus bonds and how the market works. This is the year you will learn to read the stock market quotations correctly (and have a repertoire of head-turning financial rejoinders for cocktail parties). Learn what P/E, yield to maturity, dividends, short and long positions mean, and learn how you can use these concepts for more sophisticated investing. Once you have educated yourself, consider using a discount brokerage house for your investments. You won’t get much advice, but you’ll save considerably on commissions. If you’re not yet confident enough to pick your own winners, find a full-service house and interview several account executives until you find a competent broker.



GET TO KNOW YOUR BANKER.

Banks are performing more and more services for consumers, including setting up trusts, IRAs, checking accounts and CDs. The more dollars you have, the more you may want or need to use these services in different ways. Don’t do business with a bank where you can’t get to know a manager or vice president who will take the time to meet, answer questions and trouble-shoot the bureaucracy for you.



MINIMIZE YOUR TAXES!

Know your marginal tax rate of return, and develop a strategy to lower it. Review your strategy by mid-year and year-end. Be sure to utilize the obvious tax exclusions such as dividend income, IRAs and long-term capital gains. If you have a hobby such as photography, carpentry or knitting, consider turning it into a profit-making business by selling lessons, goods or services. Although the revenue is taxable, all related expenses (your camera, circular saw, needles and do-it-yourself publications) are tax deductible. Improve your record-keeping to ease tax preparation. One woman I know has a folder for every line on every tax form she will have to use next year. She files all her receipts with notes in each folder. She keeps all other receipts in a big bag. Everyone laughs at how much of a nuisance it is to have a shelf full of receipts until it comes time for tax returns. She simply adds up each folder and writes the totals on her tax form. The big bag, filled with receipts showing sales tax paid, adds up to additional savings under itemized deductions. Don’t give Uncle Sam more than he’s entitled to.



PLAN YOUR FINANCIAL INDEPENDENCE.

Do try to save enough money to comfortably supplement your pension and social security payments after retirement. Think about your future in 5-, 10- and eventually 20-year increments. Accurate planning is probably limited to five to 10 years in the future, since the timing, rate of inflation and other variables are too unknown.



THINK ABOUT YOUR CHILDREN’S FUTURE.

Heaven knows, if there’s a budding young doctor in the house, you may be in trouble! Develop a plan for a trust fund and for savings. Unfortunately, it may require some trade-off with other retirement needs for pension supplementation or desires for a vacation home or boat.



WITH PROPER FINANCIAL planning, you may not get everything you want and dream about but you will be working toward an approximation of your needs and desires and be in much better shape than you were before.