Monthly Finance Message:

Financial Planning for 2010: Eight Timeless Strategies

December 2009

Barbara O'Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

With high unemployment rates, changing credit card terms, stock market volatility, housing value declines, and more, 2007 and 2008 have been difficult years financially for many people. Looking for ideas to improve your finances during 2010? Consider the following eight action steps for your New Year's resolutions:

  • Commit to Saving Regularly- Small amounts of savings add up. If someone saves $2,000 per year from age 20 to age 66, they would have $975,000 accumulated after 46 years, assuming an 8% average return. Savers who wait until age 30 and save $2,000 per year for 36 years would have $440,000 and those who wait until ages 40 and 50 and save $2,000 per year for 26 and 16 years, respectively, would have $188,000 and $73,000. Pay yourself first. Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long-range goals and unexpected emergencies.
  • Save Tax-Deferred- Take advantage of the generous contribution limits for contributions to individual retirement accounts (IRAs) and tax-deferred employer retirement plans such as 401(k)s, 403(b)s, and Section 457 plans. These retirement savings plans are available to all workers with earned income regardless of age. In addition, there is a special catch-up provision for people age 50 and older.
  • Maintain a Low Debt-to-Income Ratio- Monthly consumer debt payments (i.e., debts excluding a mortgage) should be 15% or less of monthly take-home pay. Example: $275 of debt payments divided by $2,500 of net pay equals a consumer debt-to-income ratio of 11% (275 divided by 2,500).
  • Accumulate an Emergency Fund- Aim to set aside at least three month's expenses. Keep this money liquid in cash equivalents such as a credit union account, money market mutual fund, or short-term CD. It may take a few months to a year to accumulate an adequate reserve. That's okay. The trick is to get started now and save regularly to accomplish this goal.
  • Develop Your Human Capital- The most recognized way that people invest in human capital is through formal education that leads to a college degree, trade school certificate, or high school diploma. Other ways to develop human capital include on the job training and experiences, non-credit courses, and self-employment or consulting work that broadens one's skill set and/or professional network.
  • Stay Healthy- Another way of investing in human capital is by spending time (e.g., exercising) and money (e.g., eating nutritious food) maintaining one's health. The results are often fewer days of sickness per year, a longer life expectancy, higher productivity at home and at work, and lower health care expenses.
  • Increase Your Personal Financial literacy- Knowledge is power. For example, knowledge of investment principles can prevent costly errors such as panic selling during stock market downturns. Appreciation of the awesome power of compound interest may provide motivation to make monthly deposits to a mutual fund and roll over lump sum distributions to a tax-deferred plan instead of spending the money.
  • Perform an Annual Financial Review- Periodic financial check-ups are as important as a routine physical exam to identify problems and potential remedies. A helpful self-assessment tool, which also provides data for ongoing research about the frequency with which various financial practices are performed, is Rutgers Cooperative Extension's online Financial Fitness Quiz http://njaes.rutgers.edu/money/ffquiz.


  1. Rutgers
  2. Executive Dean of Agriculture and Natural Resources
  3. School of Environmental and Biological Sciences