Many resolutions fall by the wayside in a matter of weeks because they are much grander in scale than what can realistically be achieved.
So, if you recently resolved to get your finances in order — one of the perennial resolutions — aim for just a few small steps as 2011 begins.
Here are three suggestions, which should be done annually. If you complete them, pat yourself on the back. And maybe your success will encourage you to take other action this year to improve your finances.
Figure net worth This is a simple exercise, but an important one to know where you stand financially.
Net worth is calculated by adding up all of your assets and subtracting your liabilities. Assets include cash, investment accounts, homes and cars. Liabilities are the mortgage, car loans, credit card balances and other outstanding debt.
Financial planner Grace Worley has been calculating her net worth annually for the past 30 years. "It's my financial report card. It tells me if I'm building my financial security," Worley says.
Some people only track debt on a credit card or two, so they don't know the true size of their liabilities until they figure their net worth, Worley says.
Ideally, you want to see your net worth go up every year. That won't always happen, of course. Many of us saw our net worth fall after the market crash of 2008 and the real estate crisis that pummeled home values.
But if your net worth drops two or three years in a row, "something is wrong." Worley says. "It's more than just the economy."
It could be something that's within your control and you can turn around, such as your spending.
Rebalance your portfolio When you started investing, you likely chose a mix of stocks and bonds to meet your risk tolerance and investing time horizon. But if you haven't touched your portfolio in years, your portfolio originally designed to hold 60 percent stocks could now be at 85 percent — far more than your risk-averse stomach can handle.
Rebalancing means you sell securities that have gone up and put money into the asset class that has gone down so you're back to the desired proportion of stocks and bonds. This forces you to sell high and buy low, which is something investors should aim to do. (If you invest entirely in a target-date retirement fund or balanced fund, the money manager rebalances for you.)
But rebalancing isn't easy.
"You're asking investors to sell an asset that has compounded returns of 25 or 30 percent and buy the asset that has a return that's down 30 percent a year," says Fran Kinniry, a principal in Vanguard Investment Strategy Group. "It goes against everything we are programmed to do as a human being."
Investors who rebalanced after the 2008 stock market plunge, for instance, would have been throwing more money into stocks. Many instead rushed into bonds and missed out on the stock market recovery that's risen more than 70 percent since hitting bottom in March 2009, Kinniry says.
He recommends rebalancing once a year and only if the mix of stocks and bonds is off by 5 percentage points or more. And by rebalancing now, you can postpone any capital gains tax until April 2012, Kinniry adds.
Credit reports Order free credit reports from the three major credit bureaus and make sure they're accurate. This also allows you to see what creditors are looking at when making decisions about extending credit to you. Also, what's in your report determines your credit score, another reason why it's important to correct errors.
You can receive free reports under federal law by going to AnnualCreditReport.com or 877-322-8228.
Marylanders also are entitled to a free annual report under state law from TransUnion (800-916-8800), Experian (888-397-3742) and Equifax (800-685-1111).