FOOL'S EYE VIEW
Five New Year's Resolutions

By Cliff D'Arcy
December 30, 2003

As 2003 draws to a close, one's thoughts, as always, are with the Commonwealth. Whoops, sorry, I mean New Year's resolutions, of course!

Seriously, the usual favourites feature among my annual resolutions: give up smoking, cut down on lager, take more exercise and so on. I have to confess that my success rate as far as these are concerned is ridiculously low. I'm with Oscar Wilde, who wrote in The Picture of Dorian Gray, "The only way to get rid of a temptation is to yield to it"!

It goes without saying that resolutions require some effort - after all, most of our bad habits are due to laziness or lack of willpower. The same goes for financial resolutions: usually we make 'em, only to break 'em.

I'll cut to the chase. Here are my five financial resolutions for 2004:

1. I'm going to pay more attention to budgeting and spending

My wife believes that I'm too obsessed with finding the best deal for everyday items. To tell the truth, I think she was bored stiff by my advice on finding great deals on Christmas presents! However, haggling has never let me down yet: I've never ended up with less money in my pocket by negotiating.

Although I don't go overdrawn these days, I still waste money on everyday items, including various treats and vices. I think a few everyday sacrifices are called for, if I'm going to live considerably below my means...

Visit our Living Below Your Means discussion board and learn to budget.

2. My mortgage is history (for now)

My wife and I have been toying with the idea of paying off our mortgage. We've had the money to do this for several years, but have refrained from doing so because investing our capital has proved the better bet. Why pay off a debt that's costing us 4.5% a year, when we can earn far more by leaving the money in shares?

Instead, we decided to shop around to find a cheaper loan, because - even though we already have a pretty fair deal - I calculated that we could save around £800 a year by re-mortgaging. (Learn more in the easy-to-read Fool guide to re-mortgaging, written by yours truly.)

However, I've recently done an about-turn and convinced my wife that we should pay off our home loan. None of our savings accounts (mostly tax-free cash mini-ISAs, TESSAs and so on) pay 4.5%, so it makes sense to cash these in and bring down our mortgage. The remaining balance will be taken care of by selling some shares.

We're not doing this for purely financial reasons - and it may prove to be the wrong thing to do. But I know that we'll both enjoy the peace of mind of knowing that our home is our own. And we'll be delighted to see the back of the Abbey National - good riddance!

PS: We'll be buying a bigger home next year, with a far larger mortgage, so this feeling may not last for long. Never mind!

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3. I'm going to save more

I'm never been much of a saver. When my parents opened savings accounts for my sister and me when we were small, I quickly emptied mine. My sister added to hers for years, and her hard work finally paid off when her building society converted to a bank and she received a hatful of free shares!

When I do save, it tends to be into the stock market - my motto has always been "cash is trash and the market's flash". However, with two small children, we need a bigger safety net than we've had in the past, so I'm going to use standing orders to put money aside every month for my offspring and me.

Visit our Savings centre.

4. I'm going to invest more and boost my pension

One thing I've noticed in recent months is that I have about half of last month's pay left in my account on payday (which is tomorrow - yippee!). If I have money to spare, I'm no longer going to leave it lying around in my current account.

The stock market's given me a lot of pleasure (and pain) over the years, and I'm committed to using it as my route to serious wealth. As well as picking individual shares, I'm going to put a monthly sum into an index tracker - protected by a tax-free shares ISA - to help me to achieve my long-term goals.

Also, my 'pension CV' is looking a bit patchy, as this article shows. It needs a boost, so I'm going to put an extra one-off lump sum into a low-cost Stakeholder pension to increase my retirement income. I won't be touching this money for perhaps 25 years, so it's all going into the stock market.

Visit our ISA and Index Tracker centres.

5. I'm going to keep shopping around for insurance

Having worked in banking and insurance since (gulp!) 1987, I've a pretty good knowledge of insurance products. I'm also a big fan of shopping around for what I consider to be the essentials: this year, I've written about my search for better-value life, motor, home and travel insurance. I also have cheap private medical insurance and, if I needed breakdown cover or pet insurance, I'd shop around for those, too!

Thanks to a recent addition to my family, my responsibilities as a breadwinner are weighing more heavily on me these days. Early in the New Year, I'm going to shop around for income protection and critical illness insurance, which will protect my wife and children if I become unable to work. I'll let you know how I get on.

Visit our Insurance centre.

Happy New Year to all our readers from everyone at the Motley Fool!

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