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December 28, 2011

Time for New Year's financial resolutions

Once again, it's time to make some New Year's resolutions. This year, in addition to hitting the gym, learning that second language and getting better organized, why not also consider a few financial resolutions?

What types of resolutions might you consider? Here are a few suggestions:

Contribute more to your retirement accounts. The new year means that you are one year closer to retirement. To help yourself build resources for the lifestyle you've envisioned as a retiree, try to boost your contributions to your 401(k) or other employer-sponsored retirement plan. You can do this if you get a salary increase and devote at least part of it to your 401(k). At the same time, try to "max out" on your Individual Retirement Account (IRA). For 2012, you can contribute up to $5,000 to an IRA, or $6,000 if you're 50 or older.

Reduce your debts. Look for ways to cut down or consolidate your debts. It may not be easy, but it's worth the effort because the lower your debt load, the more money you'll have available to invest for the future.

Build an emergency fund. If you don't already have an emergency fund containing between six and 12 months worth of living expenses, start building one soon. Keep the money in a liquid vehicle — one that's separate from your everyday checking and savings accounts. Without such an emergency fund, you may be forced to dip into your long-term investments to pay for unexpected costs, such as a major car repair, a new furnace or a large medical bill.

Don't overreact to volatility. In 2011, the financial markets have been volatile, with big gains followed by big drops followed by big gains — a true roller-coaster pattern. Try not to let large, short-term price movements influence your investment decisions. Many of the factors that cause jumps or declines are not that relevant to long-term results — and as an investor, you want to focus on the long term. Concentrate on building a portfolio that's suitable for your individual goals and risk tolerance.

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