Ten Things to Stop Doing in 2006

By Don Taylor
Bankrate.com

This column is a bit of a twist when compared to top 10 columns from previous years. I'd like you to think about some things you need to stop doing in 2006 versus things you need to do. While you're at it, take some time during this holiday season to reflect on how you're doing financially and how your finances are going to help you get what you want out of life. Have a joyful and prosperous New Year.

1. Stop spending more than you make
It's really the key step in moving forward to achieve your financial and life goals. You have a limited amount of income that you can allocate between current consumption, investing for future goals and perhaps paying for past consumption. If you keep spending more than you make you're limiting your choices in the future.

2. Stop living paycheck to paycheck
There are plenty of divergent opinions as to how much you should have set aside in cash reserves as an emergency fund, but this tip really is more fundamental than that point. An emergency fund is a buffer to tide you over during a period of financial troubles. Not living paycheck to paycheck means that you have a liquidity cushion when it comes to meeting your day-to-day expenses. Get away from the point where you're one paycheck away from financial disaster by adding some liquidity to your financial picture.

3. Stop running up credit card balances
Deficits matter -- especially personal spending deficits. Interest rates have headed higher over the past two years with the Federal Reserve raising the targeted federal funds rate by a quarter percent 13 times in the last 13 Federal Reserve Open Market Committee meetings. The WSJ Prime Rate is now at 7.25 percent, up from 5.25 percent a year ago. Variable-rate credit cards are typically tied to the prime rate. Fixed rate credit card rates tend to lag these changes, but a fixed rate isn't a lifetime commitment, and you can expect these rates to trend higher too.

4. Stop using variable rate debt
OK, I don't really want you to stop using variable rate debt; I just want you to reconsider how you're using variable rate debt. The interest rates on the home equity lines of credit, or HELOC, adjustable-rate mortgages and variable rate credit cards keep moving higher. While Fed watchers hypothecate that we're getting pretty close to the end of a Fed tightening cycle, that doesn't mean that we're looking at the Fed starting a cycle of easier money any time soon. Fixed-rate mortgages tend to move with changes in the 10-year U.S. Treasury note. That yield has been fairly range bound between 4 percent and 5 percent since the Fed started tightening. Sure, 30-year fixed rate mortgages are over 6 percent, but they've been fairly range bound too, staying between 5.5 percent and 6.375 percent over that same time period.

If you plan on being in your house for a while and are currently in an adjustable-rate mortgage, interest-only mortgage or have a HELOC outstanding, think through the costs of refinancing versus continuing to take on the interest rate risk with variable rate debt.

5. Stop counting on Social Security
This one's not for current retirees or for people near retirement. It's for people who are early on in their working careers or mid-career. It's not meant to be alarmist, but employers and the federal government are providing incentives for you to save for retirement for a reason. If your employer matches all or part of your contributions to a retirement plan, you should strive to contribute up to the limit of that match. Check out the new Roth 401(k) available in 2006. Start building a retirement war chest -- you're going to need it.

6. Stop leaving checks in your mailbox
Every time I see the little red flag up on a mailbox I think of it as an invitation for someone other than the mail carrier to pick up the mail. The U.S. Postal Service doesn't have a mailbox on every street corner any more, so it may be a bit of an inconvenience to take the extra step in mailing your letters. But between identity theft issues and check washing schemes, you really don't want to take the risk.

With first class postage going to 39 cents effective Jan. 8, you may decide that 2006 is your year to join the next century and pay bills over the Internet using your financial institution's bill-paying service.

Regardless of how you decide to change your habits you should stop leaving checks in your mailbox.

7. Stop identity theft
The good doctor had a bad year last year when it came to identity theft. I got the letter from ChoicePoint telling me that my file was one of many stolen in that debacle. To their credit, I at least got a letter notifying me of the problem and a free year of credit monitoring. Meanwhile, I still don't know if my file was appropriated in the identity theft scandals involving DSW or Bank of America.

The Fair and Accurate Credit Transactions Act gives you the right to a free copy of your credit report once each year from the three major credit bureaus -- Equifax, Experian and TransUnion. Rotate through the firms during the year by requesting a credit report every four months. The Bankrate feature, "How to get your free credit report," provides the contact information.

Other consumer reporting agencies like ChexSystems (banking) or MIB (life insurance) that fall under the Fair Credit Act also have to provide you with a free copy of their report once each year. The Bankrate feature, "Specialty consumer reports reveal your secrets," tells you how to request these specialty consumer reports.

Shred your unneeded financial documents. Buy a shredder, preferably a cross-cut shredder, or, if your community offers this service, attend the next community shred.

Although I have found the credit monitoring service valuable this year because of the ChoicePoint incident, I don't see myself continuing that service when it's my nickel paying for it.

8. Stop phishing
This hasn't been much of a problem in my e-mail this year -- the spam filter must be doing its job -- but you need to be vigilant about how you share your personal information on the Internet. Phishing is an Internet scam that uses spam or pop-up messages to trick you into disclosing your bank account, credit cards, Social Security number, personal identification numbers, or PINs, or other financially sensitive information. It's a fairly insidious attempt at identity theft. When in doubt about a request for information, go to the Web site on your own and look for commentary or discussion about a phishing scam. Never click through on the links in the message. The FTC has a guide that provides some tips about protecting yourself against phishing trips.

9. Stop the status quo
This top 10 tip relates to Newton's first law of motion. That is, an object in motion tends to stay in motion, and an object at rest tends to stay at rest unless another force acts on it.

If not being able to decide what mutual fund to invest in is keeping you from contributing to a retirement account, then find a way to get past that obstacle. If you already have an investment portfolio, review your holdings and decide if you need to rebalance or reallocate the portfolio to bring it in line with your attitude towards risk and your investment goals.

Find your way around the obstacles that are keeping you from your goals. If you're spending more than you make, put together a spending plan. If you are living paycheck to paycheck, try to build some liquidity. When you can't figure out how to get around a roadblock, ask for help. Whether it's a financial planner, fitness trainer, motivational coach or trusted friend, a fresh set of eyes and ears can help you see your way past the obstacle and put you on track to meet your goals.

10. Stop missing out on smelling the roses
Easier said than done, I know, but there's more to life than working to pay the bills. Find a way to put joy in your life if it's missing or add to your joy if it's not. People make New Year's resolutions because they're hopeful as to what the New Year will bring. Go beyond fitness and finances to figure out what you want out of life and work towards it.

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